Is it finally time to buy shares in BT for that fat dividend?

The BT (LSE: BT.A) share price has been drifting lower for just over four years now.

I know talking about share price movements seems a little shallow when great investing is all about fundamental analysis. But if you’d been holding the shares since the decline began at the end of 2015, the almost 70% plunge since then would have wiped out a serious amount of your invested capital. I think the situation is worth analysing.

Still falling

On 27 January this year, I reported that the shares had dropped by 17% in just one month to stand at 171p. I said then that “it’s getting close to revisiting the low of 158p it set last August.”

However, here we are just under a month later and the price is around 153p, as I write. Not only did the stock hit the low, it also exceeded it. And a share price making fresh lows is not a good sign, in my view.

You could argue that BT is out of favour with the market. But there’s precious little to support the share price fundamentally. For a start, BT is burdened with a lot of debt. You can see that quickly by comparing the market capitalisation of around £15bn with the enterprise value of close to £35bn. The difference between the two figures represents net borrowings.

Secondly, the financial record shows decline with revenue, earnings, and the shareholder dividend all trending lower over the past few years. And City analysts following the firm expect further weakness ahead.

In a trading update at the end of January, chief executive Philip Jansen explained that the results for the third quarter of the year were “slightly below” the directors’ expectations. But he thinks the firm is on course to meet its outlook for the full year, which means we can expect something like a decline in revenue of just over 2.3% year on year and an 18% slide in normalised earnings.

Capital-intensive operations

Jansen talks a lot in the report about how much the company is investing in the business. But with such a big pile of debt already, I reckon the capital-intensive nature of the enterprise could be a big part of the problem. It seems that BT must constantly plough big money back into its networks and infrastructure just to stay in the game.

It’s hard for me to imagine all the investment activity leading to a renewed, vibrant BT with a fast-growing business and accelerating profits. I reckon the firm is providing a good public service but may not be the best vehicle for investment if you are aiming to build up your own pot of money, perhaps to finance your retirement. 

Jansen said he’s “really excited” about the long-term prospects for this “great company.” But I see the shares as too risky for my share portfolio.