The first half of 2022 has proved to be a damning time for the stock market. Factors such as rising inflation have dampened investor confidence. And as a result, many stocks have felt the full effect of this. Yet amongst this, BT (LSE: BT.A) shares have posted a solid performance, rising over 8% this year.
The past five years have been somewhat of a disappointing time for BT shareholders. The stock is down 36% during this period as it has faced multiple challenges such as the Covid-19 pandemic. But, with the stock gaining some momentum this year, I believe this could be the start of positive times ahead for BT. Let’s find out why.
A solid buy
My main attraction to BT shares is the fact it’s a ‘defensive’ stock. With a huge amount of pre-existing infrastructure, the business has minimal operating cost exposure. And on top of this, it also has a large customer base, giving it — to some degree — more pricing power.
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Its defensive nature essentially means in uncertain periods like the one we are currently facing, BT offers my portfolio stability. With inflation continuing to soar, reaching over 9% in the UK for May, for me this is pivotal. Its strong dividend yield of 4.1% could also boost my portfolio with extra cash and offer me some protection against rising inflation.
I also like the positive outlook the business provided in its full-year results released in March. Its Opeanreach network has continued to grow and has now reached over 7 million premises with 1.8 million connections. And its 5G network now covers half of the UK population.
BT also announced how it’s extending its cost savings target to £2.5bn by the end of FY25, from the original £2bn target for FY24. This shows the business is moving in the right direction.
As a potential investor, these are positive signs.
BT doubts
While I remain bullish on BT, I do see some issues. My main concern is the debt it has. According to its results, this currently sits at just over £18bn. With interest rates creeping up, this will place further pressure on the business in its attempts to eradicate this debt. For me, this is a deterring factor.
The firm is also involved in a dispute with the Communication Workers Union (CWU) regarding pay. The CWU represents around 40% of BT’s workforce. And with the cost-of-living crisis, the union has been pressing the firm for wage increases. After failing to agree on a rise, members have been voting this month on whether industrial action will take place. Should this occur, this would undoubtedly hurt the BT share price.
Why I’d buy
There’s no doubt that, should BT fail to come to an agreement with the CWU, the next few months could see the stock struggle.
However, as a long-term investor, I see BT shares as a solid buy. The stability it can bring to my portfolio is something I value highly. And its full-year results provide me with optimism for the future of the business.
