Few UK stocks probably get as much attention from retail investors as FTSE 100 telecommunications giant BT (LSE: BT-A). But, as I’ve said before, attention doesn’t equate to a great investment. So, just how kind have BT shares been to anyone holding them since the start of 2022?
In a couple of words, ‘not very’.
BT shares have tanked
BT shares are down 26% in 2022. So, £1,000 invested here would now be worth around £740, without factoring in the costs of buying the position.
Clearly, we need to put this in context. Thanks to galloping inflation and the invasion of Ukraine, global markets have been in a funk. Many FTSE 100 members have seen their values fall by far more than BT. Housebuilder Persimmon, for example, has dropped by more than 50%. Ocado is down almost 70%!
So yes, the performance has been poor but some of this is clearly unrelated to anything the company has/hasn’t done.
I didn’t invest in BT shares back in January. But would I buy now? As usual, there are attractions and risks to consider.
Dirt cheap source of dividends
BT shares trade on a valuation of just six times forecast earnings. This makes the stock one of the cheapest in the FTSE 100. It’s also low relative to the telecoms sector as a whole.
I continue to believe that BT shares are a great source of dividends too. Sure, these can never be guaranteed but the 6% yield forecast this financial year (to the end of March 2023) is expected to be covered well over twice by profit. This makes the possibility of a cut unlikely, in my opinion. Although not enough to beat inflation on its own, that payout is also far more than the 4% offered by the FTSE 100 as a whole.
Third, the fact that French billionaire Patrick Drahi now owns almost a fifth of the company suggests that rumours of a potential bid won’t go away any time soon.
Debt-heavy
But BT is far from a home run. The recent news that FTSE 100 peer and rival Vodafone was looking to merge with Three is unlikely to be welcomed by management. Then again, there’s a possibility that the Competition and Markets Authority may veto a deal.
More problematic for me is the fact that BT remains heavily indebted. That’s not exactly attractive if interest rates continue to rise and could mean that hikes to the aforementioned dividend may remain subdued going forward.
Although margins aren’t terrible, the huge costs involved in its line of work also mean that the returns BT makes on the money put to work aren’t worth shouting about. Unfortunately, it’s this that plays a big role in helping a company (and my money) to compound in value.
Based on fundamentals, BT just doesn’t hit the spot.
My verdict
Like all stocks, I don’t know where BT shares go in the near term. Thankfully, I don’t need to care all that much. My investing horizon extends to decades, not weeks or months.
Notwithstanding this, I’m committed to buying the best businesses I can in this period of market malaise. As such, I can think of far better places to stash my cash now unless generating passive income were my one and only goal.
