If I’d invested £10,000 in BT shares 5 years ago, here’s how much passive income I’d have now!

Dividend investing can be a game changer for passive income, but how would an investment in BT have performed over the last five years?

| 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.

If I had invested £10,000 in telecoms giant BT (LSE:BT.A) shares five years ago, the journey would have been a roller-coaster ride. However, with an impressive 6.3% dividend in 2024, it would’ve brought in some decent passive income along the way.

Reflecting on the recent past and looking to the future, let’s explore this investment.

What happened?

In June 2019, if I had taken the plunge into BT shares, I might have felt a mix of optimism and caution. The company, a prominent player in telecommunications, had been navigating through challenging times, including regulatory pressures and technological shifts. Yet, it stood as a cornerstone of the UK’s communication infrastructure.

Fast forward to the present, BT’s stock has seen its share of volatility, influenced by industry dynamics and market sentiment. Over the last five years, the share price has fallen by 38%.

Dividend investors

With some speculating at a recovery, now is a good time to look at how investors focussing on the dividend would’ve done over the last five years. Just like the share price, the dividend yield has been fairly volatile, starting at 9.4% in 2020, before falling to 2.5% in 2022 as the economy contracted.

Between 2019 and 2023, a £10,000 investment in BT shares would have purchased 4950 shares at £2.02 each. This would generate passive income for each year as follows:

Year 201920202021202220232024 (YTD)
Final dividend (per share)10.78p5.39p5.39p5.69p
Interim dividend (per share)4.62p4.62p2.31p2.31p2.31p
Total (per share)15.40p4.62p7.70p7.70p8.00p
Dividend income (4,950 shares)£726.30£228.69£0.00£381.15£381.15£396.00

Fairly decent returns, but keep in mind that enormous decline in the share price over the same period, so that a £10,000 investment would now only be worth about £6,200.

What’s next?

It’s crucial to acknowledge the broader context shaping the telecommunications sector. The evolution of technology, regulatory changes, and shifting consumer behaviours all contribute to the complexity of investment decisions. The company is clearly trying hard to modernise operations and expand globally, but faces stiff competition from other providers.

CEO Allison Kirkby suggests that the story is just beginning, that BT has “now reached the inflection point on our long-term strategy“. Boosting the dividend from previous years is one way to bring investors back on side, but the company needs to ensure that a recovery in the share price can be sustained. Otherwise, investors might be waiting a long time to see returns.

There is clearly value in the brand and in the infrastructure, but the market still seems to be undervaluing this. A discounted cash flow calculation suggests the business is over 76% undervalued. A price-to earnings (P/E) ratio of 5.9 times is also well below the sector average of 19.7 times.

Am I buying?

However, I feel like there is still a long way to go before investors can be sure of how this one will go. I like the dividend yield for passive income, but if the share price continues to decline, I’d rather have my money elsewhere. I’m skipping this one for now.

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.

Gordon Best 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »