So far in 2023, shares in BT (LSE: BT.A) have performed well, rising by more than a quarter. But the long-term performance of the BT share price has been less impressive. It has fallen 19% over the past year, 31% in five years, and 53% in the past decade.
In fact, since the turn of the millennium, the BT share price has collapsed by 86%. For a long-term investor like myself, that is the opposite of what I like to see!
The shares do offer a 5.3% dividend yield, although the payout has halved since 2019 (and was cancelled altogether for 2021).
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But even allowing for the prospect of passive income from dividends, could BT shares make an attractive addition to my portfolio? Or could they go even lower from here?
Bullish investors
Clearly some smart investors see value in the BT share price.
Last month, for example, it was announced that European telecoms company Altice has increased its stake in BT to 24.5%.
Altice has said it does not plan to make a takeover bid for BT (although that does not stop it from doing so at some point in future). But clearly it understands the telecoms industry and must see value in BT to have been buying on this scale.
Strategic drift
But what makes sense for a strategic institutional investor might not match my own financial objectives as a small private investor.
The BT share price has fallen so much in recent decades for a number of reasons.
One has been that, although telecoms use has grown, so too has competition. That has required high levels of capital expenditure by players like BT and Vodafone just to stay in the game. I do not expect that to change.
BT’s strategic relevance for a shifting industry has been another concern.
While its Openreach division is performing well, the legacy business has been declining. BT revenues have fallen in each of the past five years. The company expects revenues to grow this year on a pro forma basis, but its recent track record is uninspiring in this regard.
Another ongoing risk that has contributed to the long-term decline in the BT share price is the former telecom monopolist’s legacy pension provisions.
After contributing another £1bn to its pension scheme last year, net debt rose to almost £19bn. That is more than the current market capitalisation of £14.3bn.
Ongoing value potential
Still, there could be value in the current BT share price. Even after that hefty pension contribution, BT turned in £1.9bn of post-tax profit last year. That puts it on a price-to-earnings ratio of under eight.
The company continues to have a strong brand and a large installed customer base. While Openreach is important to the company’s long-term prospects, the consumer business was the biggest source of both adjusted revenue and normalised free cash flow at the firm last year.
If it can manage its balance sheet and keep responding to shifts in customer needs, I do not think the BT share price is doomed to keep falling over the long term. Today’s price could actually offer value to long-term investors.
But I dislike the risks and think there are more attractive and less heavily indebted firms in which I could invest. So I have no plans to buy.
