As a reminder, BT Group is a telecoms infrastructure business. Operating under numerous retail brands – BT, EE, Plusnet, and Openreach – the firm supplies approximately 35% of the UK population with broadband.

On the enterprise-facing side of the company, BT owns and manages the UK’s core fixed network. Over 650 communications providers piggyback off the system to provide their customers with strong mobile signal for 2G, 3G, 4G, and soon 5G.

Why the BT share price has dropped

With such a diverse and far-reaching portfolio of services, it may seem odd that the BT share price has performed so poorly. The biggest problem is its level of debt. Building and maintain its communications network is a costly process.

The firm spent billions securing 3G licenses across Europe, repeated the process for 4G, and will likely repeat the story with 5G. It doesn’t help that the government restrictions on Huawei’s involvement with building the UK’s 5G network have added more pressure. As it stands, this pressure amounts to an expected £500m additional cost for BT over the next five years.

The company’s rapid growth during its early days created a vast need for cash flow that operations were simply not producing. So BT turned to debt financing and then seemingly never stopped. As a result, it now has over £27bn in long term obligations, including loans, leases, pensions, and tax deferrals.

Today, the total debt is nearly double the firm’s £10bn market capitalisation.

Furthermore, with the impact from Covid-19, the board of directors announced the suspension of all dividend payments until 2022. Subsequently, the share price fell to a 10-year low.

Light at the end of the tunnel?

The stock price has recently begun to rally following the release of the half-year report. Management raised guidance on the expected earnings before interest, taxes, depreciation & amortisation (EBITDA) from £7.2bn-£7.5bn to £7.3bn-£7.5bn. I’ve estimated this to translate into a net income of £1.6bn-£1.9bn.

Operationally, the business appears to be doing rather well. A new partnership with Belfast Harbour to deploy 5G was secured, improvements made to infrastructure have reduced annual costs by £352m, and the 5G network is now live across 112 cities around the UK.

Yet despite all this good news, revenues and profits continued to fall by 8% and 20%, respectively. However, a very positive sign was the repayment of £720m of debt. This doesn’t solve the solvency problem by a long shot, but it’s nice to see debt levels finally begin to decline.

The bottom line

Such a sharp rise in share price on what appears to be mediocre news tells me the stock is vastly undervalued. However, given the state of the balance sheet, I’d much rather invest my money into a company which isn’t riddled with liabilities.

The post The BT share price is starting to rise. Here’s what I’m doing now appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in BT Group. 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.

Photo-Me

Photo-Me International (LSE: PHTM), a small-cap company which sells and operates a wide range of instant service equipment, offers prospective income investors a dividend yield of 4.3% that is backed up by robust earnings growth.

Growth for the company is underpinned by two key tailwinds. First is the rollout of improved ID security and secured upload technology in France and Ireland, which is set to give Photo-Me booths a boost.

As a leading global operator of self-service photo booths, it is uniquely positioned to benefit from the introduction of these new technology features, because its huge scale means it can spread out the fixed costs of investment over more units.

Second, the company is set to benefit from technology disruption as the expansion of its laundry business continues apace. Photo-Me has recently launched two smaller self-service laundry units. This should help the company increase its presence in the Asia, particularly Japan, which is estimated to be one of the largest worldwide market for laundrettes.

Dividend growth

Shareholders in the company have seen their payouts increase by 180% in the past five years, with a compound annual growth rate (CAGR) of 22.9% in dividends per share since 2012. Indeed, shares in the company reflect its track record on earnings and dividend growth, as they have gained more than 330% over the same period.

Despite these gains, the stock’s valuation seems reasonable. It trades at a forward P/E of 16.7, based on City forecasts that this year’s earnings will rise 6% to 9.8p a share. And looking further ahead, analysts expect its earnings to climb another 6% next year, which means its forward P/E, based on its 2018 expected earnings, would fall to just 15.6.

That said, forecast growth is still a far cry from its 20%-plus rates seen recently by the company, and this explains why its forward P/E has fallen from its three-year historical average of 20.8.

STV

Another under-appreciated winner of the past few years is STV Group (LSE: STVG). Shares of the firm are up 316% over the past five years as the Scottish media company has delivered an impressive turnaround in its financial performance.

As TV audience numbers decline, because of fragmentation in the market and the rise of online media consumption, STV is doing well in its shift away from dependence on broadcast. Last year, revenue rose 3% to £120.4m, although operating profit still declined by 3% to £19.7m.

However, digital revenues rose by 20% to £7.9m, with the margin for the segment continuing to grow above its target level of 52%. And thanks to strong cash flow, dividends were raised by 50% to 15p a share, which gives STV a tempting dividend yield of 3.9%.

Looking ahead, City analysts expect more growth to come, as STV is forecast to raise dividends by 13% this year, with a further increase of 9% in 2018.

The post 2 dividend growth stocks for shrewd investors appeared first on The Twelfth Magpie.

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Jack Tang has no position in any 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.

The Costa Coffee and Premier Inn owner has seen dividends rise at an impressive compound annual growth rate of 12% during the past five fiscal years. And with earnings expected to keep rising — advances of 2% and 6% are chalked-in for the years to February 2017 and 2018 respectively — the City expects dividends to keep on chugging.

Indeed, last year’s reward of 90.35p per share is anticipated to rise to 95p in the current period, and again to 101.2p in 2018.

Sure, dividend yields of 2.4% and 2.5% for these years may trail the British big-cap average of 3.5% by no little distance. But I reckon surging sales expansion the world over should see yields overtake the FTSE 100 mean before too long.

Whitbread saw demand for its hotel beds and hot drinks stomp still higher during the most recent quarter, with like-for-like sales at Premier Inn and Costa rising 1.8% and 4.3% during the 13 weeks to December 1, even though its UK accommodation arm suffered some weakness in the period.

And the leisure leviathan’s plans to keep growing its hotel network across the UK and Germany, not to mention the number of coffee houses it operates globally, should keep shareholder returns rising.

Hit factory

Like Whitbread, ITV (LSE: ITV) has a great record of initiating jumbo dividend raises too. And despite the impact of slowing advertising revenues, I reckon, like City analysts, that the business has what it takes to keep payments on an upward slant.

Steady earnings growth is of course the key to delivering persistent payout hikes, and ITV’s double-digit earnings rises in recent years have really put a fire under the dividend. The Coronation Street creator has seen payouts surging at an annualised rate of 30.3% during the five years to 2015.

Bu while ITV is due to experience a little earnings volatility in the near term — a 1% decline is anticipated for 2017 — the company’s excellent cash flows, allied with its robust long-term outlook, should keep fuelling dividend growth. Indeed, a 4% earnings rebound is anticipated for 2018.

The dividend of 7.3p per share chalked-in for 2016 is anticipated to leap to 8p in the current year, and again to 9.5p in 2018. And these projections create bulky yields of 3.8% and 4.5% for this year and next.

While the fallout of Brexit may dent advertisers’ confidence during the near term, I believe the huge global success of homegrown shows like Poldark and Victoria­ and formats like The Voice should keep revenues from ITV Studios heading through the roof.

And the broadcaster’s insatiable appetite for acquisitions should create an increasingly-powerful player on the global stage, a terrific omen for both growth and income investors.

The post 2 Footsie growth dividend greats I’d buy before it’s too late appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended ITV. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.