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As the BT share price stays cheap, I’d invest £3k

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White BT van in front of building
Image source: BT

I reckon BT (LSE: BT.A) could be an excellent way to invest in the UK economic recovery. With that in mind, I have been reviewing the business to see it could be worth investing a small amount in the stock.

In the past, I have stayed away from the telecommunications giant due to its high levels of debt, lack of capital investment and increasing competition in the sector. Some of these headwinds remain, but it now looks to me as if the company is actively doing something to overcome these issues.

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Plans for growth

Last year, management laid out plans to reinvigorate growth after years of stagnation. BT is now planning to invest more in its brand, boosting customer service investment.

The company is also devoting more money to capital spending. This should allow it to improve the service available to customers and push back at competitors. And finally, the group is starting to chip away at its enormous debt pile.

Unfortunately, these initiatives come with a price. The group has had to significantly scale back shareholder returns to free up cash to meet all of its ambitions.

The BT share price used to come with one of the best dividend yields in the FTSE 100. Today the company does not provide any income. Nonetheless, management has said that the firm will look to reintroduce a dividend payout in the second half of 2021. 

Considering all of the above, BT is not my favourite investment today. While the company is now investing more in growth initiatives, it is still weighed down by borrowing and regulations.

The telecoms sector is highly regulated, making it difficult for any company. And as the largest business in the industry, BT attracts additional scrutiny from regulatory bodies. Also, until the firm reduces its borrowings, its ability to invest is always going to be limited. With over £18bn of debt, reducing this total seems like a tough task. 

BT share price: the opportunity 

So why would I invest? Despite the risks and challenges facing the BT share price, I would invest a small lump sum, like £3,000, in the business today. I think the stock could do well over the next few weeks and months as the UK economy reopens.

As well as this recovery potential, the stock also looks dirt cheap. It is trading at a price-to-earnings (P/E) ratio of around 8 at the time of writing. That’s compared to the market average of 16.

If and when management finally reintroduces the dividend, City analysts believe the stock can produce a yield of around 4.7%. Of course, this is just a forecast at this stage. There’s no guarantee the company will hit this dividend target.

Overall, despite the risks and challenges facing the BT share price, I would buy a small amount of the stock for my portfolio today, considering its recovery potential. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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