I’m looking closely at telecoms juggernaut BT (LSE: BT-A) this month. With the stock falling sharply following the release of its Q1 results, this could be an opportune moment to add BT shares to my portfolio.
Falling share price
A falling share price is sometimes a warning that puts off investors. However, I see it as an opportunity to potentially grab a bargain!
BT’s share price has dropped 13% over the past year, and a massive 10% in the last month! It’s currently trading at 145.5p.
The recent sell-off is down to the release of Q1 results for FY23. Revenues were essentially flat, and profit before tax fell by 10% compared to this time last year. Not exactly a surprise with inflation in the UK skyrocketing.
From an overarching perspective, I still think this is a solid business. It’s profitable, and interestingly improved its earnings per share by 7% in the same quarter. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) has also improved, and this is the message that management has been trying to push.
Growth potential
I actually think BT is well placed to ride out a potential recession and the ongoing battle the UK is having with inflation.
It has a massive infrastructure in the UK. With 5G on the horizon, this puts BT in a great position to capitalise on an emerging market.
BT also has a strong existing customer base. It has a relationship with 50% of UK households in some form. This is a great springboard to be able to drive revenue growth over the coming years.
Dividend delight
BT currently has a dividend yield of 5.3%. This is well above the FTSE 100 average, of between 3% and 4%.
It has a strong history of paying out to shareholders too. Except for Covid-hit 2020 and 2021, the telecoms giant has consistently delivered dividends to shareholders twice a year since 2002!
Since I’m looking to hold for the long term, this is great news for my portfolio.
Downsides?
BT also operates in a competitive market. Key rival Vodafone is also looking like a shrewd investment at the moment, in my opinion. So there is an opportunity cost potentially there.
There has also been strike action from members of the Communication Workers Union that BT has had to contend with in recent weeks. This, of course, takes up management time and limits productivity and service delivery in the short term. But it could be a sign that salary costs may need to rise in the coming months, and that will have a knock-on effect on profitability.
BT looks to have the potent combination of strong growth potential and likelihood of dividend payouts. The fall in share price looks as though it could be my chance to take up a position on BT whilst it’s trading at a cheap price.
