The BT (LSE: BT.A) share price should have me in a swoon. It’s so very cheap, and I love buying cheap FTSE 100 stocks.
Better than that, it comes with an ultra-high yield, and I love buying FTSE blue-chips that are going to hand me a heap of passive income.
But there’s a problem with BT, isn’t there? It’s been dialling wrong numbers for years. Investors who did succumb and buy its shares have received plenty of dividends but their capital has taken a sound beating.
Cheap for a reason
BT shares ended the millennium trading at around 995p. Today, I can buy them for less than 118p. They’re down 88% in that time.
While loads of stocks were overvalued in December 1999, many have recovered. But BT shares have continued to fail, dropping 50% in the last five years. Over 12 months, they’re down 6.83%.
They even missed out on the 2023 year-end share price rally, which floated most FTSE 100 boats. Even a most generous dividend can’t compensate for such share price misery. When will this end?
BT shares are the ultimate value trap. Yet investors can’t leave them alone. I’ve been tempted may times, but couldn’t bring myself to click the ‘buy’ button. Thankfully.
The company has a sprawling business model, burdensome employee pension scheme and a whopping debt pile. Net debt currently totals £19.7bn and is expected to hit £19.81bn in 2024 then £20.48bn in 2025. BT’s market cap of £11.71bn is roughly half that. Rising interest rates haven’t helped.
Markets still reckon BT can afford its dividend. Consensus suggests a yield of 6.63% in 2024 and 6.68% in 2025. Payouts are covered 2.5 times by earnings, so perhaps the markets are right.
The high yield is largely a consequence of the disastrous share price performance. As my table shows, BT slashed the dividend in 2020 and dropped it altogether in 2021. To be fair, so did many other companies, due to the pandemic. Most resumed at a similar level. Not BT.
Profits have been sliding
The table also shows that both revenues and pre-tax profits have been going in the wrong direction.
| Financial year | 2019 | 2020 | 2021 | 2022 | 2023 |
| Revenues | £23.428bn | £22.905bn | £21.331bn | £20.850bn | £20.681bn |
| Pre-tax profit | £2.666bn | £2.353bn | £1.804bn | £1.963bn | £1.729bn |
| Dividend per share | 15.4p | 4.62p | N/A | 7.70p | 7.70p |
BT isn’t defeated yet. In November, it reported a substantial 29% increase in first-half profit before tax to £1.1bn. Higher sales of fibre-enabled products and inflation-linked pricing both helped. Capital expenditure is finally falling, down 11% to £2.3bn. It’s targeting total cost savings of £2.5bn, with plans to lose 55,000 jobs by 2023.
Openreach has brought full fibre broadband to more than a third of UK homes and businesses, giving it a huge customer base. There are reports that Saudi Telecom is interested in buying BT shares.
Yet I still think the risks outweigh the potential rewards. The telcos market is tough, with Sky and Virgin Media grabbing share. Cash-strapped consumers are hunting around for cheaper deals, adding to price pressures.
Beaten-down stocks like this one can suddenly rocket when sentiment changes, and I’d love to be part of the BT share price rebound. But I can see safer recovery bets elsewhere on the FTSE 100 today.
