Here’s how much I’d have today after investing £1k in BT shares five years ago

Has BT’s well-known name helped to make the stock a decent investment and does it have long-term potential now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

What could be better than having part of a portfolio invested in a venerable old name such as communications services company BT (LSE: BT.A)?

Well, I don’t have any BT shares, but if I’d bought some five years ago, the stock price would have been around 311p. And that compares to the recent price near 184p, five years later.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

BT shares have been losing

So, by holding for that five-year period, I’d have lost the value of 127p per share. However, that’s not the whole story because BT has paid some shareholder dividends. And the record of payments adds up to just over 48p, so I can knock that off my loss. 

The final calculation reveals I’d have lost the equivalent of 79p per share. And that means an investment in BT shares of £1k five years ago would be worth about £746 today — ouch! And in reality, the outcome would be a little worse than that because of trading costs when buying the shares in the first place. 

I think this exercise proves that well-known stock market companies don’t necessarily make good investments. And in the case of BT, there’s a big clue about why the stock performed poorly in the trading and financial record. Indeed, BT posted a decline in earnings for every one of the past five years.

However, City analysts have pencilled in a modest mid-single-digit percentage bounce-back in earnings for the current trading year to March 2023. And the share price began to reverse its downward trend in the autumn of 2020.

In February, the company said it expects the ongoing “impact of Covid-19 and supply chain issues” to cause a 2% decline in revenue for the current year. However, the directors are “confident” that BT can deliver growth in long-term normalised free cash flow. They predict an expansion of “at least” £1.5bn in the measure compared to that achieved in the year to March 2022. And it will come, they say, from lower capital expenditure (capex) and reduced operating costs. 

Better cash flow ahead

The directors expect better cash flow because the business is moving towards being an all fibre optic and all internet protocol network provider. And such cash flow benefits will arrive, they said, regardless of any benefits of increased revenue and further transformation efficiencies.

So, could it be that we’re seeing the start of a new phase of recovery and growth in the BT business? Maybe. But so far, I’m not impressed enough to invest in BT stock. The company carries a big pile of debt and operations consume a lot of capital as the company constantly reinvests. For example, the fibre optic rollout illustrates just how much BT needs to keep upgrading its networks just to stay competitive in the game.

With today’s share price near 184p, the forward-looking dividend yield is just over 4% for the current year. And it’s possible the share price could climb as the business turns itself around in the years ahead. However, I’m not expecting growth to shoot the lights out and see better potential investments elsewhere. BT is not for me.

However, I like this one:

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Kevin Godbold 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Young brown woman delighted with what she sees on her screen
Investing Articles

3 easy actions that could boost my stock market returns

The UK stock market is going through a sticky patch so this Fool is looking for ways to improve his…

Read more »

Hispanic man using laptop in home office and drinking coffee
Investing Articles

Boohoo shares: time for me to admit defeat?

This Fool is nursing heavy losses from his Boohoo Group (LON: BOO) shares. Should he sell up and move on?

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He'd consider them for his Stocks and Shares ISA.

Read more »

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »