BT (LSE: BT.A) shares have been performing nicely over the past few months. In fact, they’re up 5% year-to-date and over 20% over the past six months.
However, over the last few years, the shares have underperformed significantly. In November 2015, the share price was over £5. After that impressive peak, they began to slump – a situation only amplified by the pandemic. Today, the shares trade at just 181p.
Considering all this, along with the threat of rising interest rates, is BT a glaring buy for my portfolio? Or should I steer clear of the UK telecoms giant?
Hedge against inflation
Inflation has been soaring across the globe, pushing up shop prices and eroding wider spending power for consumers. This is largely due to major government spending and supply bottlenecks, both caused by the Covid-19 pandemic, plus the rising cost of energy linked to both the pandemic and the Russia-Ukraine conflict.
The telecoms industry is known as a ‘defensive industry’. This is because it has plenty of tangible assets — like infrastructure — that make it less volatile to changes in markets and the macroeconomy. For example, the beta for BT is just 0.79. This means the BT share price is only 0.79 times as volatile as the general market.
In addition to this, the company also has the power to alter its pricing plans in line with rising global prices. This gives the firm the opportunity to protect itself against the current macroeconomic environment. For both of these reasons, I think that BT could be a great addition to my portfolio to hedge against rising inflation.
Another reason why investors are excited about BT shares is the fact that Patrick Drahi — the global telecom investor and owner of Altice — purchased an 18% stake in the firm. If a telecoms veteran investor is purchasing that number of shares, he obviously sees huge potential.
The firm has also announced that it will begin repaying its dividend after pausing it due to the pandemic. The 2022 dividend is expected to be 7.7p or 4.2%, which is above the FTSE 100 average of 3.4%.
Risks for BT shares
While rising prices are good for BT’s profitability, they’re bad news for consumers who can expect prices to rise by over 9%. This equates to increased yearly costs of over £40. With the telecoms industry being so competitive, this price increase could easily push customers away to cheaper operators. This would be bad news for BT and could heavily impact its earnings.
Would I buy?
BT shares do trade on a pretty steep price-earnings ratio of 17.6, however, I still think they could be a great buy at the current price. As inflation rises, I think this well-established, infrastructure-rich company could be a big positive for my portfolio. What’s more, the shares trading well below their historical levels. Therefore, I am seriously considering adding BT shares to my portfolio today.
