Why BT Group plc Is A Top ISA Buy

Why should BT Group plc (LON:BT.A) warrant a segment of your ISA allocation this year?

Chris Nials

Published 12 March, 2014 7:16 am GMT

| More on: BT.A

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

There are a couple of indicators in the Nials family household that Spring has sprung:

Firstly, I become physically unable to ever want any pancake-related item of foodstuff anywhere near my person for at least another year.

Secondly, my inbox becomes clogged with emails from numerous financial institutions reminding me that it’s ISA season again. Large in number they may be, but they raise a good point. Stocks-and-shares ISAs should be a key part of any long-term investor’s armoury — they do provide tax-free returns after all!

One of the challenges with leaving it to (or as there’s still the best part of a month left – close to) the last minute before the 5 April deadline, is figuring out quickly what shares to buy into. So, in order to help, let’s have a look at one stock that I think would be a stellar contender for a portion of your £11,520 allocation: BT (LSE: BT-A) (NYSE: BT.US).

To start with, you cannot argue that BT is a telecommunications stalwart. It has a 61% market share of the UK landline business, over 7 million broadband users in the UK (making it the largest) and is now taking on BSkyB for the rights to show more Premier League football. It has already replaced ESPN as the ‘secondary’ Premier League broadcaster, and recently completed a £900m deal for the rights to show European Champions League and Europa league matches. Beating BSkyB in the process, no less.

So, what about its financials? Well, BT currently trades on a P/E of 14.69, so perhaps could be considered relatively well priced at this moment in time. With regards to dividends, its yield is currently just over 2.5%, so a little below the 3.5% FTSE 100 average. However, over the past couple of years, its dividends per share has been on the increase, posting totals of 7.4p in 2011, 8.3p in 2012 and 9.5p in 2013.

The main reason, however, as to why I would consider BT a great selection for your ISA is because of its growth potential. In its last quarter results (released in December last year), it posted a 2% gain in group revenue and an 8% rise in group profits. Its EPS was up a fantastic 12%, too. And that’s just in the short term: BT’s long-term growth has been solid, too. In fact, the share price is up over 440% since March 2009. So, to apply a pound value to that, if you invested your entire £11,520 allocation in BT shares and saw similar growth, they may be worth over £50,500 in just five years’ time.

And when you remind yourself that that’s nearly £40k of tax-free profit, you’ll hopefully understand why this telecoms giant is firmly in my thoughts.