BT (LSE: BT.A) shares baffle me. The FTSE 100 telecoms group is burdened by an eye-watering £20.bn of net debt, and a top-heavy group pension scheme. The latter issue is easing with the pension deficit cut from £8bn in 2020 to £3.2bn today, but remains a drag.
BT also operates in the brutally competitive telecoms market, where it battles Virgin Media O2, Vodafone, and a swarm of lower-cost challengers. That means constant pressure on pricing and customer retention, which squeezes margins and makes profitable growth hard work. Who would buy a company like this?
Over the years, the business became bloated and unfocused, particularly after straying into areas like sports rights. Chief executive Allison Kirkby has had to push through restructuring and cost-cutting to simplify operations and restore discipline.
Balance sheet realities
BT has also been forced to spend heavily on the future, pouring £15bn into Openreach’s full-fibre broadband rollout. At the same time it’s bleeding business, losing broadband customers at a rate of almost 250,000 a quarter.
Markets still seem willing to give Kirkby the benefit of the doubt, admiring her efforts to streamline the business. The BT share price is up 50% over two years and 25% in 2025.
BT does have some built-in advantages. Mobile and broadband services are essentials of modern life. Even in tough times, people keep paying the bills if they can. That delivers recurring cash flow, although customers are always ready to switch if prices aren’t competitive.
If BT can leverage its expanding fibre footprint to win more wholesale business, revenues could become more stable and predictable over time. It also plans to reduce headcount dramatically, using artificial intelligence, which will slash costs if it works. We’ll see how that goes.
Cash flow and credibility
Then there’s the income. The dividend yield peaked above 6% at one stage and still sits around 4.5% today, following that strong share price run.
That said, the dividend track record is hardly reassuring. Shareholder payouts were frozen at 15.4p in 2018 and 2019, slashed by 70% in 2020, scrapped altogether in 2021, then restored at 7.7p in 2023. In 2025, BT’s dividend totalled 8.16p, way below the 2018 number. It’s not what I’d call a rock-solid income stock.
The shares look good value though, trading on a price-to-earnings ratio of just under 10. That’s nicely into generational bargain territory, but for one problem. I think that reflects the massive scale of the challenge it still faces. BT walks a fine line between infrastructure investment, debt reduction, pension scheme obligations, and shareholder rewards.
And all the while, it faces smaller, nimbler rivals nibbling away at its bloated carcass, like fish circling Hemingway’s shark in The Old Man and the Sea. That didn’t end well.
BT might be worth considering for long-term income and infrastructure exposure. But there are cleaner, simpler dividend growth stories elsewhere in the FTSE 100, with fewer moving parts and less baggage. I think I’ll bait my hook for them instead.
