At times I’ve been sorely tempted to buy BT (LSE: BT.A) shares, but have always held off. I decided the FTSE 100 telecoms business was too big, too sprawling, with too many things that could go wrong. So when the shares finally took off a couple of years ago, I kicked myself. They’re now up nearly 50% in three years, and 12% over 12 months, with some pretty generous dividends on top. Did I mess up?
In my defence, BT faced an awful lot of challenges, having stacked up on debt during an earlier dash for expansion, which left it owing tens of billions. Revenues from legacy fixed-line phone services were plunging, while mobile operations faced intense competition from Vodafone, O2 and others, squeezing margins.
Volatile FTSE 100 stock
The slow and costly rollout of full-fibre broadband under Openreach weighed on profitability, while its overmighty corporate pension scheme cast a shadow over the balance sheet. And I was never convinced by BT’s bold (reckless?) foray into sports broadcasting, in a bid to protect its broadband customer base. It faced a tough Premier League opponent in Sky, playing on home ground. BT has since exited.
The real opportunity came when Allison Kirkby was appointed CEO in February 2024. Even at the time, I sensed this was the ideal moment to buy. The shares were yielding 6% or 7%, and looked dirt-cheap with a price-to-earnings (P/E) ratio of five or six. But I looked at all those problems and held back. Shame. The BT share price is up 60% since Kirkby took over.
It was more, but it’s been sliding in recent weeks. Somebody who invested £10,000 in BT three months ago would be sitting on a 13% paper loss today. That money would be worth £8,700.
That’s hardly the end of the world. At The Motley Fool, we think people should buy shares with a minimum five-year view, ideally longer, and expect ups and downs along the way. Now I’m wondering whether I’ve been handed a second buying opportunity.
BT shares still look pretty good value, with a P/E of 9.55. The trailing yield isn’t as stellar as it was, but is still pretty solid at 4.59%. The dividend looks set to grow but slowly, with a forward yield of 4.64% in 2026, edging up to 4.86% in 2027.
Decent valuation and dividend yield
Telecoms is a competitive market, as BT’s first-half results published on 6 November confirmed. It lost 242,000 broadband customers during Q2 alone. Group revenues of £9.8bn were slightly lower than forecast, falling 3% year on year.
There were positives, as Openreach Fibre to the Premises now extends to 20.3m premises, with total connections climbing 1.1m to 7.6m this year. BT is on course to hit its full-year targets, but that still means sales falling by up to 2%, to around £20bn.
Consensus analysts can see the shares sitting at 193.3p over the next year, an increase of around 8.6% on today. Throw in the forward yield and the total return would hover around 13%. That’s halfway decent, if it happens.
Investors might consider buying BT shares today, but I’m still wary. I can see more exciting income growth stocks on the FTSE 100 today, and with fewer moving parts. I’ll be targeting them instead.
