If I’d invested £5,000 in BT shares three months ago here’s what I’d have today

Harvey Jones keeps returning to BT shares, wondering whether he finally has the pluck to buy them. The cheaper they get, the more he’s tempted.

| More on:

Image source: Getty Images

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.

BT shares (LSE: BT.A) are the itch I can’t resist scratching. Every month or two I return to the FTSE 100 telecoms stock, and worry away at it.

It’s dirt cheap and the yield is sky high. I’ve bought a heap of UK blue-chips matching that profile lately, and done pretty well out of them. Yet I can’t bring myself to buy BT. Anybody who knows its recent share price history will understand why.

The BT share price just falls and falls. It’s down 31.71% over one year and 54.35% over five. With other companies, that would tempt me.

By purchasing a stock when it’s cheap and out of favour, I get a lower entry price and higher yield. Theoretically, I get a bit of downside protection too, because the big falls are already in.

This stock is so cheap

There’s no buzz about BT shares, quite the reverse. Which means there’s little risk of buying at an inflated level.

However, just because a company’s share price has fallen by half, doesn’t mean it can’t halve again. The last time I was tempted to buy BT shares was three months ago, but I’m glad I didn’t.

The stock is down another 9.64% in that time. If I’d invested £5,000, my stake would be worth £4,518 today. I’d be down £482. Plus I’d be left with the nagging feeling that this isn’t the end of it. With BT, the news just seems to get worse.

So why do I keep clawing away at it? Its low, low forward price-to-earnings ratio of 6.75 times earnings for 2024 is one reason. Currently, the FTSE 100 as a whole trades at 12.4 times earnings.

Then there’s the income. BT is forecast to yield 7.36% in 2024. That’s close to double the FTSE 100 average of 3.8%.

Oh but the downsides! The reason the stock is so cheap is that most investors don’t want to touch it, and understandably so. And the reason the yield is so high is that the share price has fallen so far. There’s another danger. Earlier this month, broker UBS warned that BT may have to slash its dividend in half, to keep it affordable.

New boss Allison Kirkby is working hard to turn things around. Openreach’s ultrafast full-fibre broadband and 5G network will be available to 25m homes and businesses by 2026. The group is targeting £3bn of savings by the end of next year and will axe up to 55,000 jobs by the end of the decade.

Yet BT has to fight for customers in a competitive market, while handicapped by a huge pension scheme deficit and £20bn net debt. That’s almost double its £10.45bn market cap.

I’m still tempted, though. Did I mention it was cheap? JP Morgan Cazenove recently called the shares heavily undervalued and “ripe for a major re-rating”. It reckons today’s price of 105.35p could cut 290p. I’d love to get a piece of that. Yet still the shares fall. I’m not going to buy BT shares today. But that itch isn’t going away. Soon I might have to scratch it.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

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

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£5,000 in savings? Here is how I would invest in income shares

This Fool has been searching for ways to generate a passive return via income shares.

Read more »

Market Movers

The Keywords Studios share price just jumped 63%. Time to sell?

The Keywords Studios share price has soared on the back of takeover talk. Here, Edward Sheldon explains what he’d do…

Read more »