As the BT share price jumps 6%, is it time to buy?

The BT share price has made a good start to the day as the telecoms giant beat first-half expectations. Is there more to come?

| More on:

Image source: BT Group plc

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 BT Group (LSE: BT.A) share price has had a poor five years, down 55%.

But that’s pushed the forecast dividend yield up to 6.9%. And BT shares jumped 6% in early trading Thursday (2 November), on the back of first-half figures.

That dividend looks tempting, and I wonder if the share price might have finally bottomed out.

Beating expectations

The headline news is that BT’s second quarter profits came in ahead of City expectations.

Outgoing CEO Philip Jansen said: “Our delivery in the first half means we are confirming our financial outlook for FY24 with normalised free cash flow now expected towards the top end of the guidance range, and we are declaring an interim dividend of 2.31 pence per share.

It sounds like he’s going out on a high note, as he’ll hand over to new boss Allison Kirkby in the new year.

Happy shareholders?

I’m torn when I think about what might happen to the BT share price now. BT has been paying big dividends for years. But it’s built up a huge debt pile, and doesn’t seem to be too interested in doing anything about it.

The thing is, shareholders appear to have been happy just to take the cash. And as long it keeps flowing, why worry about anything else? Well, that can work fine when stock markets are doing well.

But just look at that five-year BT share price fall. A 6.9% annual dividend is no good to me if I lose more than half the value of my shares.

The debt pile

Net debt has grown again, from £18.9bn at 31 March to £19.7bn. BT did point out that the rise is “mainly due to pension scheme contributions“. So that’s fine, then.

Hang on, wait a minute. BT’s big pension fund deficit is essentially a different kind of debt — it’s money the company owes to its pensioners.

So debt has, in effect, just been moved from one pile to the other. And the £19.7bn way outstrips BT’s market-cap of £12bn, even without peering into the murky depths of its pension hole.

Lesson from Vodafone?

Rival Vodafone has accepted the reality that many of us had seen years ago. It’s been inefficient and hasn’t been working well enough. As a result, the mobile phone firm is in a time of big change.

Its CEO Margherita Della Valle has said: “Our performance has not been good enough… To consistently deliver, Vodafone must change. We will simplify our organisation, cutting out complexity to regain our competitiveness.

Hmmm, new boss brings change? Might we hear something similar from Allison Kirkby at BT in 2024?

To buy, or not?

We might be at the bottom of this dire economic phase we’re in. So if BT can keep hitting its targets, and keep paying those big dividends, shareholders might stay happy. And I see a fair chance the BT share price could start to move upwards again.

But for me, a company with such massive debts carries too much risk of destroying long-term shareholder value. Just like the last five years.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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

Young black colleagues high-fiving each other at work
Investing Articles

I’d buy this penny stock with its 5% yield and growth prospects before it soars!

Our writer breaks down this penny stock with its current enticing yield and explains how growth potential could help it…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

Is buying one of the best performing FTSE 100 stocks in 2023 wise right now?

Volatility has hurt many FTSE 100 stocks. Is one of the better performing shares on the UK’s premier index a…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Is the Shein IPO a nightmare for the boohoo share price?

It was revealed today that Chinese fast fashion giant Shein is preparing to go public in the US. What now…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Is the easyJet share price set to soar in 2024?

The easyJet share price is lower today than in the 2020 stock market crash. Can that be right? Might it…

Read more »

British bank notes and coins
Investing Articles

Should I buy M&G shares for the 9.8% dividend yield?

With the M&G dividend yield close to double digits, this existing shareholder explains why he'd happily buy more of the…

Read more »

British Isles on nautical map
Investing Articles

This cheap UK stock could rise 30%, the City says

Analysts covering Serco Group shares reckon they could rise by over a quarter. But is this UK stock a good…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s how I’d aim for a million by investing £45 a day

Christopher Ruane thinks putting £45 a day into blue-chip shares could help him aim for a million. Here are some…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

I’d buy FTSE 100 shares in December before the next stock market rally!

Christopher Ruane explains why he would happily snap up cheap FTSE 100 shares between now and the end of the…

Read more »