If I had invested £10,000 in telecoms giant BT (LSE:BT.A) shares five years ago, the journey would have been a roller-coaster ride. However, with an impressive 6.3% dividend in 2024, it would’ve brought in some decent passive income along the way.
Reflecting on the recent past and looking to the future, let’s explore this investment.
What happened?
In June 2019, if I had taken the plunge into BT shares, I might have felt a mix of optimism and caution. The company, a prominent player in telecommunications, had been navigating through challenging times, including regulatory pressures and technological shifts. Yet, it stood as a cornerstone of the UK’s communication infrastructure.
Fast forward to the present, BT’s stock has seen its share of volatility, influenced by industry dynamics and market sentiment. Over the last five years, the share price has fallen by 38%.
Dividend investors
With some speculating at a recovery, now is a good time to look at how investors focussing on the dividend would’ve done over the last five years. Just like the share price, the dividend yield has been fairly volatile, starting at 9.4% in 2020, before falling to 2.5% in 2022 as the economy contracted.
Between 2019 and 2023, a £10,000 investment in BT shares would have purchased 4950 shares at £2.02 each. This would generate passive income for each year as follows:
Year
2019
2020
2021
2022
2023
2024 (YTD)
Final dividend (per share)
10.78p
–
–
5.39p
5.39p
5.69p
Interim dividend (per share)
4.62p
4.62p
–
2.31p
2.31p
2.31p
Total (per share)
15.40p
4.62p
–
7.70p
7.70p
8.00p
Dividend income (4,950 shares)
£726.30
£228.69
£0.00
£381.15
£381.15
£396.00
Fairly decent returns, but keep in mind that enormous decline in the share price over the same period, so that a £10,000 investment would now only be worth about £6,200.
What’s next?
It’s crucial to acknowledge the broader context shaping the telecommunications sector. The evolution of technology, regulatory changes, and shifting consumer behaviours all contribute to the complexity of investment decisions. The company is clearly trying hard to modernise operations and expand globally, but faces stiff competition from other providers.
CEO Allison Kirkby suggests that the story is just beginning, that BT has “now reached the inflection point on our long-term strategy“. Boosting the dividend from previous years is one way to bring investors back on side, but the company needs to ensure that a recovery in the share price can be sustained. Otherwise, investors might be waiting a long time to see returns.
There is clearly value in the brand and in the infrastructure, but the market still seems to be undervaluing this. A discounted cash flow calculation suggests the business is over 76% undervalued. A price-to earnings (P/E) ratio of 5.9 times is also well below the sector average of 19.7 times.
Am I buying?
However, I feel like there is still a long way to go before investors can be sure of how this one will go. I like the dividend yield for passive income, but if the share price continues to decline, I’d rather have my money elsewhere. I’m skipping this one for now.
The post If I’d invested £10,000 in BT shares 5 years ago, here’s how much passive income I’d have now! appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
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What happens if the BT share price drops below 100p?
Only 3 FTSE 100 stocks are near their 52-week lows right now
Gordon Best 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.
