However, the business may be starting to turn a corner and I suggest that long-term value and dividend investors consider adding the blue-chip shares into their telecoms portfolio.
Is your portfolio 5G ready?
Creating growth opportunities in a mature industry like telecommunication services requires proactive management. And that’s where one of BT’s strengths may lie. I believe the upcoming 5G revolution should be a strong catalyst for the company’s share price and management certainly regards the 5G rollout strategy as a priority area.
5G stands for “fifth generation mobile networks.” The benefits of 5G will include much faster download speeds, more data capacity — a must for the Internet of Things (IoT) devices — and very little lag in mobile applications, which should have a positive impact on the development of online gaming as well as self-driving cars.
BT’s mobile subsidiary EE will launch 5G services in about 20 UK cities within the next few months in its efforts to beat rivals, especially Vodafone. The group will also market a 5G home router for residential broadband coverage.
The company is aiming to be the 5G leader and organic earnings growth linked to the technology is expected to materialise in several years, after the full UK-wide 5G commercial launch in 2022 and onwards.
Buy-and-hold investors would not see the positive effects of the 5G strategy on the bottom line and the share price for a good few years and some patience is therefore necessary. However, the current low share price makes the shares an attractive play on the future 5G revolution.
Robust dividend yield
In the meantime, BT’s current dividend yield of 6.5% could also make the company an important addition to an income-generating portfolio.
This month, it paid an interim dividend of 4.62p for FY2018/19. The next final dividend payment is expected in late August and the forecast dividend for the year is 15.4p.
As a mostly subscription-based business, it has a stable cash flow, another positive factor to consider for dividend investors.
In its earnings release in January, the group said that the full-year profits would be at the top end of the guidance range. Revenues of £5.93bn beat expectations, buoyed by a tariffs price increase. The shares currently trade at a P/E of 11.2, a number that should catch the attention of value investors.
The arrival this month of Philip Jansen as new CEO after the departure of Gavin Patterson marks a big change. Analysts regard the turnaround strategy initiated by his predecessor, especially the strict cost-cutting measures that have helped boost margins, as crucial in BT’s comeback story. Therefore the new CEO is expected to stay the course for now.
However, many analysts and investors are divided as to whether BT should continue to offer combined services to customers by bundling TV, internet and mobile contracts.
The Bottom line
I regard BT as one of the key telecom stocks to buy for value and dividends. Despite the lagging share price since 2016, the company has a strong brand and an infrastructure for both mobile and broadband that covers 90% of the country — two reasons that should also make it a dominant player in the 5G sphere.
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tezcang 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.