Does the BT stock fall make it a no-brainer buy now?

A further 4% fall in recent days puts BT stock down 86% from all-time highs. Is now finally the time pick up a few shares on the cheap?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Telecommunications firm BT (LSE: BT.A) saw its stock dive 4% in a matter of two trading days in the past week. It’s now down a staggering 86% from all-time highs in late 1999.

This level of volatility isn’t unusual for one of the most traded stocks on the London Stock Exchange, but it might be a chance for me to pick up shares on the cheap. 

I can see a few compelling reasons for me to open a position in the company.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

Dividend returns and share price growth

The BT share price peaked during the dotcom boom in 1999. Investors were piling in, dazzled by the potential of the nascent internet. The stock crashed shortly after and never recovered, with today’s share price still down 86% or so from those highs. 

Created with Highcharts 11.4.3Bt Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL14 Mar 201814 Mar 2023Zoom ▾Jul '18Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '232019201920202020202120212022202220232023www.fool.co.uk

A return to those levels looks unlikely. In fact, I think this £14.8bn telecoms business operates in too saturated a market for any further rapid growth, which means I doubt I’d see my shares increase in value.

On the other hand, the company offers its shareholders an excellent annual yield of 5.43%. That’s among the highest dividend return I could get from any FTSE 100 company. To put it into perspective, even with rising interest rates, I’d receive only 2%-3% annually from most Cash ISAs. 

If I could rely on a £543 annual payout for each £10,000 invested then I’d be pretty happy. And with the exception of 2020 due to the pandemic, BT has offered regular and generous dividends going back decades.

The stock looks cheap too. A price-to-earnings ratio of around eight compares very favourably to the FTSE 100 average of 14 and the UK telecoms sector of just over 17. All else being equal, I’d expect the share price to grow towards the industry average, which would net me more returns. 

The big problem here is that, in this case, things are most definitely not equal.

Debt the size of Iceland

The elephant in the room with BT is its eye-watering debt pile – the company currently owes around £19bn. That’s roughly the same as the GDP of an entire country like Iceland. 

It’s even £5bn more than the firm’s own market cap. If management wanted to give the company away for free, then the new owners would be billions worse off. 

Not all debt is bad, of course. But the reason for BT’s problems is a staff pensions deficit that the company hasn’t really got a handle on. And that deficit is like a leaky pipe. It will keep causing problems until it’s fixed. To emphasise this, the debt went up by over a billion in the last year alone. 

What does this mean for me? Well, the dividends that look attractive right now could be reduced or axed to free up cash to deal with the debt. That makes it a risky play, in my book.

Am I buying?

So while there are positives about the company, the reality is that cheap dividend-paying companies are plentiful in Britain right now. The high debt levels mean I’ll be keeping a bargepole’s worth of distance between me and this stock.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Fieldsend has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »

Investing Articles

2 stocks that could help investors earn £2,516 of passive income per year from a £20k ISA

Our writer selects two high-yield UK dividend shares for investors to consider that could turbocharge a passive income portfolio.

Read more »