Over the past five years, BT (LSE: BT.A) shares have trended lower. But the telecoms company pays dividends. So could that shareholder income have saved me from a total investing disaster if I’d bought its shares five years ago? Let’s dig into the figures a little.
Declining figures
BT’s five-year dividend record is quite weak. The company skipped payments around the depths of the pandemic. And it’s since restored them but rebased at a lower rate. Today, dividends are running at around half the level they were between 2017 and 2019.
Part of the problem could be the firm’s multi-year record of declining revenue and earnings. Although operating cash flow remains robust. Nevertheless, BT suffers under the burden of a big pile of debt. And, sadly, the trend over the past few years has been for borrowings to increase.
On 5 November in the half-year report, chief executive Philip Jansen hinted at some of the challenges faced by the company. He said the high inflationary environment and “significantly” increased energy prices means “additional action” is needed to bear down on costs. And that’s necessary to “maintain the cash flow needed to support [BT’s} network investments.”
Putting all this together, it seems to me BT has been prudent in reducing its dividend payments. And that’s because the business could be finding it hard to afford bumper shareholder payments. Nevertheless, City analysts predict modest single-digit percentage increases in the dividend for the current trading year to March 2023 and for the year after.
A high dividend yield
Meanwhile, with the share price near 125p, the yield is running at just over 6%. And, at first glance, that seems attractive. But I suspect similar attractions could have drawn me into the stock five years ago. So let’s see how a £1,000 investment in the shares on 24 November 2017 would look today.
Back then, the share price stood near 250p. So there’s been a decline of 125p, or 50%. But I can add back dividends because they would have offset some of the capital loss on the investment. And my dividend-take over the period would have been a little over 43p per share.
So those dividends bump up my holding to the equivalent of 168p per share. Therefore, the total loss on my investment would have been around 33%. And my £1,000 would now be worth about £670 after five years of holding BT shares.
The main lesson I choose to draw from this example is that a high dividend yield will not save me if an underlying business underperforms. And a multi-year record of declining revenue and earnings is never a good look for any company.
BT faces vast demands on its cash flow from the need to constantly reinvest into its infrastructure and systems. It’s possible that operations and the share price could perform well for shareholders from where we are now. But I think I’m seeing better stock opportunities elsewhere so will not invest in BT shares now.
