BT (LSE: BT) shares are among the year’s biggest FTSE 100 turnaround stories. After losing more than three-quarters of their value over the years, they’re now up 14.5% over 12 months as investors sniff an opportunity.
Many will have been encouraged by telecoms tycoons Carlos Slim and Sunil Bharti Mittal picking up a stake in the stock. Should I join them?
The BT share price has taken a breather since the Slim-Mittal excitement, to my relief, as this gives me time to build up some cash to invest in it. It looks cheap judging by today’s price-to-earnings ratio of 7.83. Also by its price-to-revenue ratio of 0.7, which suggests investors only pay 70p for each £1 of sales.
The stock looks good value
Today, BT has a trailing dividend yield of 5.63%, comfortably above the FTSE 100 average of around 3.51%. Better still, markets expect that to continue climbing, to 5.74% this year and 5.86% in 2025.
In 2024, BT froze the dividend per share at 7.7p. However, analysts expect more action going forward, with a forecast of 8.16p per share in 2025, 8.4p in 2026, and 8.65p in 2027. By then, the yield is forecast to be 6.1%.
I haven’t invested a penny of this year’s Stocks and Shares ISA contribution limit. That gives me the scope to put all £20,000 into BT shares, if I felt like it (and if I had that much).
If I did that at today’s price of 143.75p, I’d pick up 13,913 shares. If the dividend per share does hit 8.16p next year, I’d earn a handy £1,196.52 of income in the first year. Plus any share price growth on top.
Investors are forward-looking. They’ve been buying BT shares in the expectation that the board will sort out its problems, not because it’s already done so.
Dividends and maybe growth too
In 2025, BT is forecast to have net debt of £20.03bn, almost equal to its forecast revenues of £20.8bn. Revenues are expected to hit £20.85bn in 2026 but net debt is expected to climb too, hitting £20.27bn. BT shares will struggle for any more growth until the board starts whittling that down. It needs to take action on the pension scheme deficit too.
CEO Allison Kirkby is looking to bring things into balance by shedding 55,000 jobs by the end of the decade. She’s also looking to streamline the company, lining up a sale of Radianz, part of its business division. BT has also been exploring the sale of its Irish and Italian units. Shrinking that debt will be a big job though.
Kirkby’s claim that BT has hit the “inflection point” as its investment in full-fibre network Openreach should help. I just hope it gets a return on its money, as it risks shedding customers to smaller, nimbler broadband suppliers.
I’m afraid that BT has too many challenges for me to risk investing my entire £20k ISA. I’d happily invest £4k though. I’d then split the remainder between other great value FTSE 100 stocks with high yields, low valuations and fewer problems. There are plenty out there.
