Six months ago, I decided I was finally ready to buy BT (LSE: BT. A) shares, but somehow I never quite got round to it.
At one point my finger even hovered over the ‘buy’ button, but I couldn’t seal the deal. BT Group still seemed in such a mess, and my courage failed me. Instead, I bought other FTSE 100 dividend stocks.
I should have bought them!
One of them was Rolls-Royce, which has rocketed 80% since then. So no regrets there. I also bought Lloyds Banking Group, Persimmon and Rio Tinto, which have all grown by single digits since. So far, so-so.
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All of those companies face major challenges, as does BT Group. Yet I should have bought the telecoms giant last September because it fulfilled pretty much everything I’m looking for in a FTSE 100 stock purchase at the moment.
BT was dirt cheap, trading at 7.03 times earnings. It offered a generous yield of 5.4%. Better still, those dividends looked pretty secure, covered a handsome 2.6 times by earnings.
So what held me back? One thing is that BT is difficult to judge as a company, because it has its fingers in so many pies.
Its customer-facing divisions alone include BT Consumer, BT Broadband, BT TV, BT Sport, BT Mobile, Plusnet, EE, BT Enterprise and BT Global Services. Then there’s Openreach, which connects homes and businesses to the UK’s broadband and telephone network.
It sounds like a thrilling, dynamic business. But in reality, it’s a straggler. In 2015, the BT share price peaked at around 500p. Today, it trades at 158p. It is down 35% over five years and 17% over one year.
BT has faced stiff competition from rival internet and telecoms providers, while sporting rights is another tough market. Maintaining its fibre infrastructure and mobile network costs a small fortune, with capital expenditure totalling £5.3bn last year, and a forecast £4.8bn in 2023.
Hindsight always comes too late
Revenues, profits and market share have all been squeezed accordingly. The company’s return on capital employed is just 11.2%.
Yet lately, BT stock has enjoyed some relief, rising a pretty decent 27.88% over six months. That would have turned a £5,000 investment into £6,394. So with hindsight, I wish I’d bought it last September. There was a buying opportunity but I was too scared to take it.
The big question is whether I should buy BT shares today. They’re a bit more expensive than they were, trading at 7.7 times earnings. The yield has fallen slightly, to 4.9%. That’s not a huge difference, but it’s a shame. It’s a worthwhile reminder of why I like to buy shares when they’re down rather than up.
BT faces just as many challenges as it did last September, if not more, given that it posted a dip in Q3 revenues in February. Investors remain wary, and it would only take one poor set of results to knock them right back.
Yet for a long-term investor like me, I think it’s worth the risk. September was a better time to buy BT shares but today is also good. Now I just need to keep my nerve.
