Telecommunications and networks provider BT (LSE: BT.A) has seen its share price rise for most of 2023.
And near 149p, its around 33% higher than in January, although the stock has slipped back around 7% over the past month. But that may just be ‘noise’.
Is this business turning?
However, the rise this year is meaningful. And it may be signalling the beginning of a sustainable turnaround in the business.
If that’s the case, the current valuation looks tempting. After all, the dividend yields above 5%, based on City analysts’ projections for the trading year to March 2024. And that’s handy income to collect in a share account.
However, the company still has a lot of work to do to get the enterprise back to good health. And one way of judging the rate of improvement is by looking at expectations for the dividend.
On that score, things could be better. The directors rebased the shareholder payment lower after the pandemic and now it’s around half the level in 2019. But analysts don’t expect it to grow much and have pencilled in miniscule advances of less than 1% a year ahead.
Meanwhile, to put things in perspective, the stock has fallen by around 18% over the past year. And that’s despite the partial bounce-back recorded since January.
The full-year results should be with us tomorrow. But will they contain any unexpected positives that may push the share price higher?
Maybe. But I’m not holding my breath in anticipation. The City braces have pencilled in an uplift in earnings of almost 14% for the reporting year to March. But that improvement is likely to be already factored in and could be the reason for the share-price buoyancy this year.
Outlook and dividends
Sometimes full-year reports cause a dip in share prices, at least in the short term. And that can happen when everything is reported ‘as expected’, or slightly below anticipated figures.
It’s the old adage in operation – sometimes it’s better to travel than to arrive.
Perhaps the most value we’ll get from tomorrow’s anticipated report is the updated outlook statement. If the directors can raise expectations a little, it’s conceivable that the current short-term slide in the share price could be arrested.
But right now, analysts are a little gloomy and forecast a dip of about 6% in earnings for the trading year to next March.
In the current challenging economic environment – especially for consumers – I’d be surprised if we don’t hear more talk about difficult trading conditions from BT tomorrow.
Meanwhile, the company is still nursing a huge mountain of debt on the balance sheet. And no matter what the business, it’s often easier without a debt-burden than with one.
I’m not expecting the BT business to set the world alight with its growth trajectory any time soon. Although I do concede that the venerable old name has plenty of ongoing turnaround potential.
For me, key to any investment in the shares today is the potential sustainability of the shareholder dividend. So I’ll be looking for clues in tomorrow’s update.
