Which is better for our wealth, the BT or Vodafone share price?

The BT Group share price has moved neck-and-neck with Vodafone in the past five years. But which might make more gains in the next five?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Exterior of BT Group head office - One Braham, London

Image source: BT Group plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

sdf

I’ve watched the BT Group (LSE: BT.A) share price falling for years. I saw it climb above £10 in the dot com bubble at the end of 1999.

At around 110p these days, that’s a 90% fall. A great advert for long-term stock market investing? Nope.

Something similar happened with Vodafone Group (LSE: VOD). And the share price loss this century is close.

Lesson

We must learn something from that, right? Don’t buy telecoms shares?

Well, maybe not at the peak of a tech stock bubble when valuations get silly. But even without that, they’ve both been poor performers in the past decade.

Still, one thing has always nagged me. These two have been on good dividend yields for years, even though I’ve thought they shouldn’t.

For BT, massive debt and the big pension fund deficit put me off. At Vodafone, it was lack of cover by earnings, and a feel that the firm needed to change.

Dividends

We’re seeing a refocus now. Part of it means the dividend will be sliced in half starting in 2025.

For now, we’re still looking at a forecast 11.2% yield this year. And after the cut, 5.6% would still seem pretty good to me. Especially if that’s as low as it’s likely to go.

BT, meanwhile, shows no sign of wanting to cut its dividend. And with a 7% forward yield, there must be a share price that makes it a buy. Mustn’t there?

And since February, BT shares have been gaining a bit.

Long-term returns

Even if the BT share price doesn’t move, and the dividend stays the same, that 7% could still build up a tidy sum.

Just £200 a month, with a 7% annual return, could generate a pot of £102,000 in 20 years. So, forget BT’s debt and don’t think about how the company should change? Just take the cash and reinvest it?

If I’m hearing it right, I think that’s what the BT share price uptick might be telling me. And it might be right.

Forecasts

Both stocks show good forecasts. At Vodafone, we see rising earnings in the next few years. And a dividend that should be well covered after the cut takes place.

These are probably the most uncertain forecasts of the two, mind. And we’ll have to see how the refocus goes.

At BT, we also see earnings growth. And the dividends should be close to twice covered.

Which is better

Right now, I’m drawn more to BT. Its forward price-to-earnings (P/E) ratio of only seven is low. And it might even suggest the share price has bottomed out.

I have fresh hopes for Vodafone too. But I’m more inclined to wait and see how 2024 pans out.

So, am I coming up with a new strategy? Shut up and take the dividends? I think it might work. Then again, to be fair, it might be stupid.

Vodafone’s restructure could be very risky. And BT’s dividend is surely still under threat from all that debt. But it would at least be a simple strategy.

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

piggy bank, searching with binoculars
Investing Articles

Up 82% in 12 months, this dividend stock still has a 5.5% yield!

This dividend stock has given investors growth and a strong yield in recent years. Dr James Fox explores whether there’s…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Over the last 3 years, this British investment fund has delivered nearly double the return of the FTSE 100

Thanks to his specific investment approach, this British fund manager has beaten the FTSE by a wide margin over the…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Analysts reckon the Vodafone share price is still undervalued!

Our writer’s been looking at the latest Vodafone share price forecasts and assesses how the group’s performed against the targets…

Read more »

Investing Articles

Considering a Stocks & Shares ISA in 2025? Make sure to avoid these pitfalls

Mark Hartley outlines a few basic tips for investors to ensure opening a first-time Stock and Shares ISA goes as…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

What will take the Lloyds share price beyond 80p?

The Lloyds share price has leapt by 40% in the last six months. It's also soared by 135% in five…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

Want to become an ISA millionaire? Here’s one way to target stock market riches with £500 a month

Making a million pounds or more in an ISA doesn't have to be a pipe dream. Here's how a mix…

Read more »

Light bulb with growing tree.
Investing Articles

Could the ITM Power share price be set to soar like Rolls-Royce?

The Rolls-Royce share price has risen 10-fold since 2022. Could this under-the-radar UK growth stock deliver similar returns in the…

Read more »

Close-up of British bank notes
Investing Articles

Turn £20k into a £1k second income this summer? Here’s how!

With £20k, our writer thinks a portfolio of blue-chip shares could help an investor earn a four-figure second income each…

Read more »