How have investors in BT (LSE: BT.A) done in recent years? The answer to that is obviously driven in part by the performance of the BT share price.
Or perhaps I should say ‘answers’.
After all, the share price has moved around a fair bit in recent years. I think that movement actually illustrates some concepts that are of more general interest even to investors who do not own BT shares.
Up over 90% in a couple of years
Take someone who invested in May 2024, just over two years ago.
Since then, the BT share price has grown by an impressive 91% (in fact, by last month it was up 122%, but it has fallen in recent weeks).
So, the investment would have close to doubled in value in just over five years.
Compare that to the five-year record. During that period, the BT share price has actually declined, albeit only by less than 1%.
Still, it is bad enough that it has gone nowhere in five years. That is particularly disappointing given that the wider FTSE 100 index of leading British shares has moved up by 50% during those years.
A couple of simple but important investing lessons
That demonstrates that when people talk about something being ‘a good share to buy’ or ‘a bad share to buy’ they are only talking about part of the picture. Price always matters.
BT shares a couple of years ago and BT shares five years back are the same beast. What changed between those moments and now is the business performance and investors’ assessment of it.
So, no matter how good a company may be, the price someone pays for it is important when determining whether it may also make a good investment.
Billionaire investor Warren Buffett summarises this by saying that he looks for “great companies at attractive prices.”
While the BT share price has underperformed the FTSE 100 in terms of capital gain over five years, one area where it currently beats the index is dividend yield. It offers 4.2%, well above the Footsie’s 3.1%.
Again, though, purchase price matters. After all, dividend yield is a function of both annual dividends per share and the price paid for that share.
So while someone who bought five years ago almost at today’s share price would be earning a 4.2% yield now, someone who bought just over two years back at a much lower price would today be earning closer to 8%.
Here’s my take
I have looked at BT’s business and share price at various points over recent years.
Some parts of its business, like its Openreach broadband network, seem like they have long-term potential to me. On top of that, BT’s brand remains well-known (if not universally liked) and its legacy business is substantial.
What put me off before was more the business itself than the share price. Much of it is focused on managing decline, rather than growing. The company’s revenues fell last year, as they had the prior year.
It is also saddled with historic pension liabilities that can periodically require substantial additional cash, a risk I do not like. I think there are more exciting opportunities in today’s market.
I have no plans to invest in BT – but am glad to be reminded of some useful investing lessons by it!
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Christopher Ruane has no position in any of the companies mentioned.
