BT Group (LSE: BT.A) is out of favour right now, with the share price on a bit of a slide since the summer. And that brings me to my first possible reason to buy BT shares.
Share price fall
The shares are down 9% over the past 12 months, which isn’t so bad.
But that hides the volatility of 2022. In the three months from the recent peak in July, the share price slumped by 35%.
The shares saw a sharp dip on 28 July, when Q1 trading details were released. Revenue increased, and EBITDA rose by 2%. But pre-tax profits fell by 10%, due to disappointing performance in BT’s enterprise division.
Since then, the share price has carried on down. But I can’t see any further bad news having emerged, and it really just looks to me like it’s due to sentiment.
A share price fall on its own is not a good reason to buy a stock. But BT’s forecast price-to-earnings (P/E) ratio is now under seven. And the forecast dividend yield is above 6%.
Dividends
And that’s my next potential reason to buy. A 6% dividend is a good one by FTSE 100 standards. And if the shares are undervalued, this could be a great opportunity to snap them up and lock in an attractive yield.
Saying that, I’ve been critical about BT’s dividend policy in the past. Despite huge debt, which reached £18.9bn at 30 June, BT has prioritised its dividends. In general, I don’t see that as the best use of surplus cash.
I prefer companies that focus on improving their long-term balance sheets ahead of stuffing shareholders’ pockets in the short term. But there is an argument that the cash amount of the dividend is very small compared to the debt.
That doesn’t entirely convince me. But as long as it’s BT’s approach, and it’s committed to maximising dividends, it’s an argument to buy. And if we’re going to buy, it’s surely best to buy when the shares are low and the yield is high.
Fibre and 5G
While BT’s financial picture might look a bit clouded now, its full-fibre broadband and 5G coverages are growing at a healthy pace. As of 30 June, the BT Openreach fibre network had reached more than eight million homes and businesses in the UK. There’s still some way to go, but the company expects to accelerate its rollout to 3.5 million new premises in the current year.
The EE 5G network had also reached more than 55% of the country’s population at the same stage.
Reasons not to buy
There are reasons not to buy BT shares too. The big one for me is that massive debt, which makes BT’s low P/E a bit misleading. The headline ratio might be under seven. But adjusting for that £18.9bn debt, we get an enterprise value P/E of around 17. And that looks less attractive.
If not for the debt, I think I’d buy BT shares today. But as it stands, I’ll remain cautious and keep away for now.
The post 3 reasons to buy BT shares today appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
As the BT share price slide continues, is it time to buy?
Are BT shares in further trouble?
If I’d invested £1,000 in BT shares at the start of 2022, here’s what I’d have now
Best British shares to buy in October
Having fallen 15% in a month, are these two UK shares now dirt-cheap?
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.