There has been bad news on the line for shareholders in BT (LSE: BT.A) in recent months, with the shares falling 28% since July. Over the past 12 months, BT shares are down 14%. That is a more modest fall, but a decline nonetheless.
So while the dividend yield of 5.4% is attractive, from a share price perspective, BT has been performing weakly.
As a believer in long-term investing however, might that give me a buying opportunity for my portfolio? After all, BT shares cannot keep sliding forever – or can they?
A declining business?
One of the common arguments against BT is that a lot of its core business is in long-term structural decline. But is that accurate if we consider BT’s performance over the past decade?
Last year, the company’s adjusted revenue, excluding its Openreach division, was £15.4bn. A decade ago it was £14.2bn. That is not a strong rate of growth across the course of a decade. But it is still growth.
So although it may seem that demand for BT’s services outside Openreach is in decline, the company’s revenues show little sign of that at the revenue level. If the company is losing customers in some areas, its pricing and business mix seem to be making up for it in sales terms.
Openreach
What about the business I associate with the future, BT’s digital network subsidiary Openreach? Last year, revenues in the division came in at £5.4bn. That is a sizeable business – but not much more than a decade ago when the unit delivered £5.1bn of annual sales.
I have seen the growth potential at Openreach as one of the jewels in BT’s crown. However, it does not seem to be translating to significant revenue growth in practice. Meanwhile, the unit’s strong market position means there is always the risk of price caps or other regulatory intervention eating into profits.
Profits declining
Revenues are the one thing that seem to have been holding up pretty well at BT. Its strong market position is serving it well and I think that could continue. But what about profits?
Last year, profit before tax was £2bn and basic earnings per share came in at 12.9p. A decade ago, the figures were £2.4bn and 25.8p respectively. In other words, while revenues have been holding up at BT, profitability has not done as well.
That is also reflected in the dividend. Back in 2012, the annual dividend per share was 8.3p. Last year it was 7.7p. That is not a big fall, but it is still a fall. If I owned BT shares I would now be earning less in dividends each year than a decade ago.
My move on BT shares
BT’s revenues are robust and, while profits have shrunk over the years compared to the company’s heyday, they are still substantial. BT has a future as a business and in that sense, BT could be a share of the future not just the past.
But I also see limited future growth prospects at the firm. I can find what I regard as more promising growth stories elsewhere and do not plan to buy BT shares for my portfolio.
