The prices of FTSE 100 have seen a broad-based decline in the latest stock market crash. The telecom provider BT Group (LSE: BT-A) is no exception. At the last close, its share price was 42.7% lower than at the start of the year. In comparison, the FTSE 100 index has fallen a far lesser 29.4%.
BT had problems before
BT’s problems don’t start with the 2020 stock market crash. It might have accelerated the fall, but it’s certainly not responsible for it. BT’s share price has been falling for much of the past five years owing to disappointing financial performance and more recently, the fact that its dividends may be cut to finance capital spends.
Reasons for recovery
Yet, I think the BT share price is due for at least some recovery. Consider its price-to-earnings ratio (P/E) at 5.2 times, which is among the lowest for the FTSE 100 set of companies. As investor confidence returns, I reckon it will appear to be a better buy than it has in a long time now.
According to the Financial Times, analysts’ median target price for BT is 205p, which is 82% above the closing price yesterday. It’s possible that this target price may be revised downward as COVID-19’s impact on the global economy becomes clearer. But I’m pretty sure it won’t be revised down to the current price levels.
This is especially so since its dividend yield is 13.7% right now, making it a tempting buy. A double-digit dividend yield can’t be taken lightly considering that it’s similar to the capital gains on some FTSE 100 stocks over a year.
If the stock markets continue to be weak, it may well turn out to be a better bet than some growth stocks. Even with the risk that BT’s dividend could be cut this year, investors may still end up winning.
Last, but not the least, Chancellor of the Exchequer, Rishi Sunak’s maiden budget has promised huge infrastructure spending. This includes “£5 billion to support the rollout of gigabit-capable broadband in the most difficult to reach 20% of the country” according to the budget document.
Further, it said that it intends to legislate that new homes are built with this broadband capacity as well. These are in addition to the already existing broadband expansion plans in place. The implementation of these announcements should hold BT in good stead in the years to come considering that it’s a leading provider of broadband and mobile networks.
More good than bad
In sum, BT’s prospects aren’t bad and it’s a large, profit-making company that delivers critical infrastructure services. I’m already an investor in BT and given its current dividend yield I’m inclined to buy more. This is particularly because in my calculations, there’s scope for a good income from it.
At the present share price, I think there’s even room for growth investing. At the very least, it’s definitely one to consider.
The post The BT share price has fallen 43% in this stock market crash. Here’s why I think it’s due for recovery appeared first on The Motley Fool UK.
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Manika Premsingh owns shares of BT GROUP PLC ORD 5P. 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.
Motley Fool UK 2020