The BT Group (LSE: BT.A) share price has had a dreadful five years, losing more than 50%.
Other stocks have been showing signs of recovery in the past few months. But there’s been no let up for BT shares.
They’re down 20% in the past 12 months. And a poor start to 2024 saw the price hit a 52-week low in early February. I’m wondering if it’s time to buy.
Rebased valuation
There’s been no real recent growth, and the debt pile is huge. And I’ve felt that BT shares have been overvalued for quite a few years.
I think the Covid years led people to think again about which stocks they value highly. And there could be a lot of that behind the BT price fall.
But once the market thinks a stock has found its new fair value level, the buyers will often buy back in. Has that happened with BT? I think it just might have done.
We’re looking at a price-to-earnings (P/E) ratio of under seven now, less than half the long-term FTSE 100 average.
Now, it could go even lower. But I can’t help feeling it might have bottomed out now.
Dividends
The low share price has pushed the BT dividend yield up too, and we’re now looking at a forecast 7.3%. For a long time, I’ve seen the BT dividend as unsustainable.
But, apart from a Covid blip, I’ve been wrong. The dividends are at half their pre-pandemic levels. But the BT board has made it clear that they still want to pursue a progressive dividend policy.
For me, the problem has been squaring up the dividend with BT’s big debts, and I don’t like that as a combination. But it actually doesn’t cost as much as we might think.
BT paid £750m in dividends in 2023. And that’s only a bit more than the interest paid in the year.
For a company with revenue of over £20bn, profit after tax of £1.9bn, and capital expenditure of more than £5bn, that’s not a lot of money.
Keep it going
If BT can convince the market that it can keep its dividends going, I think that could bring some confidence back and give the share price a boost.
And with its 2023 results, the board said: “We reconfirm our progressive dividend policy which is to maintain or grow the dividend each year…“
Just that 7.3% yield, if maintained, could turn each £1,000 invested in BT shares today into £4,000 in 20 years. That’s even if the share price doesn’t rise.
Lack of growth
The lack of growth could shatter this ideal, though. BT plans to drastically reduce its workforce by 2030, for one thing.
If any of that should damage the firm’s ability to keep handing over the cash, and we see any hint of a cut, that could be a setback.
I generally don’t go for companies with big debts. But in this case, plonk down a small amount of cash and just keep taking the dividends? It’s tempting.
