There are few FTSE 100 stocks whose share price is lower right now than it was on 23 March, when the index touched bottom in the stock market crash. Telecom biggie BT (LSE: BT-A), however, has shown that share price trend. At last close at time of writing, it was 114.7p, which is almost 2.5% lower than on the day.
BT share price falls on weak results and dividend suspension
Share price weakness is nothing new for BT. It has been struggling for years now. But I still liked the stock for its double-digit dividend yield, to the extent that I’ve actually bought BT shares. But the Covid-19 crisis and the subsequent stock market crash has taken its toll on dividend payouts across FTSE 100 companies, and BT bit this bullet recently too. It suspended dividends until 2022 citing concerns regarding the impact of Covid-19 on its business. It also said that it would like to use these funds to make investments into BT’s networks.
The BT share price tanked on the announcement, which came with its 2020 results. By the close of the trading day, its share price had fallen by as much at 8.2% from the day before. Of course, slashing dividends wasn’t the only reason that the BT share price fell. Both its revenue and income were down from the year before and it hasn’t given guidance for the next year either.
Positives for BT
Yet, two weeks after the announcement, the BT share price has recovered quite a bit. It’s now up over 8% from then. It’s worth noting, though, that even with this increase it is lower than at the stock market’s absolute bottom. That in itself says to me that there’s room for share price increase going forward. But there are other reasons too.
One, if BT’s going to benefit from diverting the funds that would otherwise have gone into paying dividends into capital spending, it’s a positive for investors. Moreover, the company will start paying dividends in 2022. It has also already said that it will pay 7.7p per share. This is lower than the amount suspended, but in terms of the dividend yield, it isn’t bad. At the current share price, this dividend will translate into a 6.8% yield.
Share price projections
Now, two years is a long time. Many FTSE 100 companies that have suspended dividends for now, but at least some of them could start paying them again. What actually happens will depend on the state of the economy and growth prospects. I reckon though, that even then BT’s yield would be quite competitive.
According to Financial Times data, analysts forecast BT’s share price to be at an average of 138p one year from now. That looks optimistic going by the trend over the past years. If this plays out and the BT share price remains at this level up to 2022 as well, the yield would still be at 5.6%, even if I bought the share only then. For an investor with at least a three- to five-year horizon in mind, buying the BT share is unlikely to result in a loss. I’d consider buying it today.
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Manika Premsingh owns shares of BT GROUP PLC ORD 5P. 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.