The BT Group (LSE: BT.A) share price soared on 24 July after the telecoms giant appointed Patricia Cobian as its first female chief financial officer. It was a historic moment for the company and investors seemed thrilled.
But the market reaction added fuel to a rally that already looks a little overheated.
The stock has climbed a remarkable 48% since the start of 2025. Unfortunately, that strength has eaten into what was once an attractive income stream. The dividend yield began the year at a healthy 6%, but with the share price running ahead, it now stands at just 3.8% — barely above the FTSE 100 average.
That in itself is not a deal-breaker, but the earnings backdrop makes things more concerning. BT’s price-to-earnings (P/E) ratio has leapt from under 10 to above 20 in the space of a few months. For a business that has not been growing its earnings, that is quite a stretch. Annual revenue has been drifting downwards since 2018, yet investor optimism continues to inflate the price.
A trading update at the end of July added more questions than answers. Revenue fell 3% year on year to £4.9bn, while profit before tax dropped 10%. With margins already razor-thin and debt sitting heavily on the balance sheet, these are hardly the sort of figures that would usually justify a near-50% share price surge.
That said, one positive number did stand out — free cash flow. This more than quadrupled in a year, from £279m in 2023 to £1.23bn in 2024. That improvement could be the hidden force behind much of the recent investor confidence, as cash flow is ultimately what supports dividends, debt repayments and investment in growth.
Positive developments
BT has also enjoyed some encouraging developments recently, most notably a partnership with CoreWeave to explore artificial intelligence (AI) integration. I doubt I need to highlight the importance of AI adoption in today’s world.
But while exciting on the surface, I remain cautious. Some analysts feel CoreWeave is weighed down by debt and over-reliant on just a few customers. If its model falters, BT might not see the expected benefits.
Another small but important win came when an appeal to revive a £1.3bn lawsuit against BT was overturned. This cleared away a lingering legal risk and boosted the company’s credibility. Meanwhile, Goldman Sachs recently slapped a Buy rating on the shares, setting a target of 300p — about 30% above current levels.
And on the marketing front, BT has signed up Uncommon Creative Studio to reposition its brand in modern Britain, with the aim of reaching both businesses and households.
So despite results, it certainly appears to be heading in a favourable direction, strategy-wise.
So where does this leave things?
Personally, I find the BT share price a bit confusing and hard to justify at today’s levels. The income potential looks modest, the valuation is stretched and the fundamental growth picture has not changed much.
That said, recent developments are encouraging. Overall, it remains a strong national brand with essential infrastructure and a yield that is typically higher.
With those factors in mind, I think it is still worth considering as a solid long-term income stock within a diversified portfolio.
