Over the past three months, I’ve been keeping a close eye on BT Group (LSE: BT.A)’s share price. It has weakened over the past four months, but has bounced back hard since early March. I don’t own this FTSE 100 stock currently, but I’d like to find out if this popular share is too cheap and whether I should therefore buy it.
BT’s roller-coaster ride
Way back in late November 2015, the BT share price was above £5. But then this widely held and popular stock set off on a multi-year decline. At the end of 2018, the shares had more than halved to 238.1p and then closed out 2019 even lower at just 192.44p.
During 2020’s Covid-19 crisis, the shares crashed as low as 94.68p on 3 August 2020, before recovering to end the year at 132.25p. At the end of 2021, this stock closed at 169.55p, having surged as high as 206.7p on 23 June 2021.
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But these shares have been on a downward slope since mid-February of this year, having closed at 200.9p on 16 February. Here’s how they have performed over seven different timescales:
| One day | -2.1% |
| Five days | -4.2% |
| One month | 2.0% |
| Year to date | 4.6% |
| Six months | -0.6% |
| One year | -9.1% |
| Five years | -39.1% |
As you can see, the shares are up over one month and in 2022 so far. However, they have fallen over one year and crashed almost two-fifths over five years. Yikes.
Why I’d buy BT today
For me, BT’s biggest problem (other than its massive pension deficit and debt mountain) is that its revenues and earnings per share have been falling for years. However, it has posted a slight rise in earnings in 2022, so that’s a good start. Maybe the rot has finally stopped?
The other piece of good news for long-suffering BT shareholders is that this telecoms giant has restored its cash dividend. This pay-out was cancelled during the 2020-21 pandemic, but has returned at 7.7p per share. Based on the current share price, here’s how BT’s fundamentals stack up today:
| Share price | Market value | P/E ratio | Earnings yield | Dividend yield | Dividend cover |
| 177.4p | £17.6bn | 14.1 | 7.1% | 4.3% | 1.6 |
At current levels, BT’s price-to-earnings (P/E) ratio is slightly over 14, which is in line with the wider FTSE 100 index. This equates to an earnings yield of 7.1% a year, which covers the dividend yield of 4.3% a year by 1.6 times. To me, this suggests that BT’s new cash yield is both sustainable and growable.
What’s more, if BT returns to growth and earnings start rising, these fundamentals would look more attractive to me. Of course, the UK faces several high hurdles right now, including soaring inflation (consumer prices), rising interest rates, falling economic growth, and the risk of another global recession.
Nevertheless, though I expect the BT share price to be volatile in 2022-23, I’d still buy this cheap share today. And then I’d hold these shares for their passive income, while waiting for their price to rise again!
