BT Group (LSE: BT.A) is out of favour right now, with the share price on a bit of a slide since the summer. And that brings me to my first possible reason to buy BT shares.
Share price fall
The shares are down 9% over the past 12 months, which isn’t so bad.
But that hides the volatility of 2022. In the three months from the recent peak in July, the share price slumped by 35%.
The shares saw a sharp dip on 28 July, when Q1 trading details were released. Revenue increased, and EBITDA rose by 2%. But pre-tax profits fell by 10%, due to disappointing performance in BT’s enterprise division.
Since then, the share price has carried on down. But I can’t see any further bad news having emerged, and it really just looks to me like it’s due to sentiment.
A share price fall on its own is not a good reason to buy a stock. But BT’s forecast price-to-earnings (P/E) ratio is now under seven. And the forecast dividend yield is above 6%.
Dividends
And that’s my next potential reason to buy. A 6% dividend is a good one by FTSE 100 standards. And if the shares are undervalued, this could be a great opportunity to snap them up and lock in an attractive yield.
Saying that, I’ve been critical about BT’s dividend policy in the past. Despite huge debt, which reached £18.9bn at 30 June, BT has prioritised its dividends. In general, I don’t see that as the best use of surplus cash.
I prefer companies that focus on improving their long-term balance sheets ahead of stuffing shareholders’ pockets in the short term. But there is an argument that the cash amount of the dividend is very small compared to the debt.
That doesn’t entirely convince me. But as long as it’s BT’s approach, and it’s committed to maximising dividends, it’s an argument to buy. And if we’re going to buy, it’s surely best to buy when the shares are low and the yield is high.
Fibre and 5G
While BT’s financial picture might look a bit clouded now, its full-fibre broadband and 5G coverages are growing at a healthy pace. As of 30 June, the BT Openreach fibre network had reached more than eight million homes and businesses in the UK. There’s still some way to go, but the company expects to accelerate its rollout to 3.5 million new premises in the current year.
The EE 5G network had also reached more than 55% of the country’s population at the same stage.
Reasons not to buy
There are reasons not to buy BT shares too. The big one for me is that massive debt, which makes BT’s low P/E a bit misleading. The headline ratio might be under seven. But adjusting for that £18.9bn debt, we get an enterprise value P/E of around 17. And that looks less attractive.
If not for the debt, I think I’d buy BT shares today. But as it stands, I’ll remain cautious and keep away for now.
