With the BT (LSE: BT.A) share price close to 205p, it’s down almost 60% over four years. And that’s after an almost 30% bounce since its recent bottom in August when it dipped below 160p.
Why did it turn around and start drifting up in August? Maybe the catalyst was the announcement that month that the firm intended to delist from the New York Stock Exchange, terminate its ADR programme, and to deregister and terminate its reporting obligations to the SEC.
That directors’ decision was aimed at saving money. It costs a lot to maintain a stock market listing, and BT’s high debts and rising capital expenditures have been squeezing cash flow.
The threat of nationalisation removed
However, I suspect that the political situation in the UK could have kept the share price creeping up in the past few months. BT was a prime target for the nationalisation programme that Labour proposed. So speculation that labour would be unlikely to win an election could have pushed the shares higher. After all, as a value proposition with a high dividend yield, BT looked attractive to many investors.
And the flow of news from the company could have kept the kettle boiling. In early October, for example, the firm announced an “unprecedented range of new products, services and skills programmes to help create a better connected and more competitive Britain.”
Then at the end of October in the half-year results report, chief executive Philip Jansen told us the firm is making progress with its modernisation agenda, “delivering over £1.1bn in annualised cost savings.” In December, we learnt that BT reached an agreement to sell its Spanish managed ICT services business, which is aimed at accelerating the company’s “global transformation.”
Big borrowings
But I’m not getting too excited about BT shares because the company still carries a lot of debt. Net borrowings are running close to £20bn, which compares to last year’s operating profit of around £3.35bn. On top of that, the trading record for the past few years, and looking ahead to next year, shows falling revenues, slipping earnings (that do look set to stabilise next year), and generally flat cash flow.
One thing that has been shooting up is annual capital expenditure (capex), and the situation is squeezing free cash flow, which has only been covering the dividend payment around once. Because of that, I reckon the shareholder dividend is vulnerable to ongoing downward pressure.
One of the big attractions on the surface, though, is that big dividend. And last time I wrote about the company in August, the yield was around 8%. But today, it’s about 6.5% after the bounce in the share price.
Yet I’m still not attracted to it. For my dividend-led investments, I want to see a record of rising revenue, earnings and cash flow to support dividend payments, and BT falls short on those measures.
