I’ve watched the BT Group (LSE: BT.A) share price falling for years. I saw it climb above £10 in the dot com bubble at the end of 1999.
At around 110p these days, that’s a 90% fall. A great advert for long-term stock market investing? Nope.
Something similar happened with Vodafone Group (LSE: VOD). And the share price loss this century is close.
Lesson
We must learn something from that, right? Don’t buy telecoms shares?
Well, maybe not at the peak of a tech stock bubble when valuations get silly. But even without that, they’ve both been poor performers in the past decade.
Still, one thing has always nagged me. These two have been on good dividend yields for years, even though I’ve thought they shouldn’t.
For BT, massive debt and the big pension fund deficit put me off. At Vodafone, it was lack of cover by earnings, and a feel that the firm needed to change.
Dividends
We’re seeing a refocus now. Part of it means the dividend will be sliced in half starting in 2025.
For now, we’re still looking at a forecast 11.2% yield this year. And after the cut, 5.6% would still seem pretty good to me. Especially if that’s as low as it’s likely to go.
BT, meanwhile, shows no sign of wanting to cut its dividend. And with a 7% forward yield, there must be a share price that makes it a buy. Mustn’t there?
And since February, BT shares have been gaining a bit.
Long-term returns
Even if the BT share price doesn’t move, and the dividend stays the same, that 7% could still build up a tidy sum.
Just £200 a month, with a 7% annual return, could generate a pot of £102,000 in 20 years. So, forget BT’s debt and don’t think about how the company should change? Just take the cash and reinvest it?
If I’m hearing it right, I think that’s what the BT share price uptick might be telling me. And it might be right.
Forecasts
Both stocks show good forecasts. At Vodafone, we see rising earnings in the next few years. And a dividend that should be well covered after the cut takes place.
These are probably the most uncertain forecasts of the two, mind. And we’ll have to see how the refocus goes.
At BT, we also see earnings growth. And the dividends should be close to twice covered.
Which is better
Right now, I’m drawn more to BT. Its forward price-to-earnings (P/E) ratio of only seven is low. And it might even suggest the share price has bottomed out.
I have fresh hopes for Vodafone too. But I’m more inclined to wait and see how 2024 pans out.
So, am I coming up with a new strategy? Shut up and take the dividends? I think it might work. Then again, to be fair, it might be stupid.
Vodafone’s restructure could be very risky. And BT’s dividend is surely still under threat from all that debt. But it would at least be a simple strategy.
