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Cheap UK shares: BT and Royal Dutch Shell are big gainers today. Would I buy them now?

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FTSE 100 shares BT (LSE: BT) and Royal Dutch Shell (LSE:RDSB) are among the biggest gainers today after their earnings releases. The BT share price is up 2.3% and the Royal Dutch Shell share price has risen by 1.5% as I write. These are modest increases compared to the 7.7% increase in the Flutter Entertainment share price, which is today’s biggest gainer. But, this doesn’t take away from BT and RDSB’s increases. Clearly something about their numbers has turned investors positive, which suggests that the gains are driven by their fundamentals. 

But are these developments enough to sustainably drive share prices up for these FTSE 100 companies? Or are these just a one-off increases, that will die down in the coming days? I think that these questions are most important to assess whether these are good additions to a long-term investment portfolio now. 

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BT sees better earnings, to reinstate dividend

BT’s results showed the continued impact of Covid-19 on its performance, which is visible in both its revenue and profits. However, I reckon investors are still positive on the stock because, one, its earnings outlook has improved. It just raised the lower end of its earnings’ range. And two, it’s going to reinstate dividends next year. BT had a huge dividend yield before coronavirus struck, so it’s easy to see why investors are pleased. Its operational performance has improved as well, which could be playing on investors’ minds too.

Royal Dutch Shell turns profit, increases dividend

The Royal Dutch Shell share price has also benefited from its dividend announcement. The FTSE 100 oil biggie increased its dividend payout by 4% as it posted a profit in the latest quarter. This would be a relief to shareholders after it cut dividends a few months ago, the first time it did so since the Second World War, according to a report by The Guardian.

Should I buy these cheap UK shares?

Heartening as the positive dividend changes are, however, I think there are two points to note before buying shares of either company. One, if the share price continues to fall even with an increase in/reinstatement of dividend, the invested capital value gets eroded. It can happen that the decrease in share price is less than the income earned, so on a net basis the investment is still profitable. But I don’t want to take that risk. 

I would rather put my money in stocks with stable prices that also earn an income. Even if the dividend yield is low, that is still preferable in these unpredictable times. In regular times, neither BT nor RDSB would look as risky as they do now. But in keeping with the current scenario, I’d wait for evidence of sustained share price uptick from the stocks before buying and/or increasing my holdings. In a nutshell, these cheap UK shares aren’t the best immediate buys, in my view.

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Manika Premsingh owns shares of BT GROUP PLC ORD 5P. The Motley Fool UK owns shares of Flutter Entertainment. 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.

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