I’m using this FTSE 100 stock to help protect my portfolio from inflation

I think that asset-rich BT could provide me a good hedge against rising UK inflation so I’m looking to see whether now is the time to buy the stock.

| 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.

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The last time I covered BT (LSE: BT-A), the stock was performing well. However, in the past 30 days, the share price has slid over 17%. Year to date the shares have fallen almost 10% and in the past 12 months, they’ve dropped almost 11%. So, with the share price at a dip, is now the time for me to add this FTSE 100 stock to my portfolio? With inflation on the rise, I think so. Let’s take a closer look.

Poor results

The recent fall in the BT share price can be attributed to its results released at the end of last month. The group reported a marginal 1% increase in revenue, which reached £5.1bn. It also revealed that its Openreach fibre optic broadband now covered over 8m homes and its 5G network covered 55% of the UK.

So, why have the shares fallen? Well, while revenues rose, profits fell by over 10% compared to the year before. Much of this drop was fuelled by the firm’s enterprise division that has been performing poorly in the last year. CEO Philip Jansen highlighted that the division would face “ongoing challenges” throughout the remainder of 2022 and beyond.

Inflation hedge

Although the firm’s profits have fallen, I think that the stock could be a great buy at the current share price. A primary reason for this is the current state of the UK economy. Inflation is still on the rise, reaching a sizzling 12.7% for June. Economists are predicting this trend to continue towards the back end of 2022 and into 2023.

BT has a huge number of assets in the form of pre-existing infrastructure, which is great at protecting it against rising costs. In addition to this, the company is a ‘defensive stock’. Even when the economy falls into recession — something looking ever more likely — people will be watching TV and making phone calls, so it will always have customers.

It also operates with a low price-to-earnings (P/E) ratio of just 12.4. Comparing this with competitor Vodafone, which has a P/E ratio of just under 20, I see great value. The meaty 4.9% dividend that BT shares offer is also comfortably above the FTSE 100 average of 3.7. This could be great for topping up my portfolio with some extra cash. Both of these factors encourage me to buy the stock.

Why I’m buying

In my opinion, the low valuation and inflationary hedge mark an attractive opportunity to add BT shares to my portfolio. The shares have been sliding due to sub-par results. However, in my opinion, the business is still well positioned for long-term success, especially when considering its impressive 5G and Openreach expansion. Therefore, I’m looking at opening a BT position in my portfolio in the near future.  

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 assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

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

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »