Should I buy BT shares to beat 9% inflation?

BT shares are up 3.5% this year and offer a higher dividend yield than the FTSE 100 average. Is the stock a good investment for 2022?

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BT (LSE: BT-A) shares have been in an uptrend for the past 18 months after falling during the early stages of the pandemic. At 178p today, the BT share price is up about 80% from its 2020 lows.

Could investing in the FTSE 100 telecoms group help protect my portfolio against runaway inflation, which hit a 40-year high last month? Let’s explore whether I’d buy BT stock today.

A positive trajectory

BT has a history of disappointing shareholders — it’s down 43% on a five-year basis. However, there are signs the share price could be staging a revival after rising 8% over the past six months.

Investors will hope this upward momentum can be sustained. And there are reasons to be bullish. Profit before tax increased 9% for FY22 and BT forecasts adjusted EBITDA of at least £7.9bn in FY23.

The shares also offer investors passive income with a FTSE 100 index-beating dividend yield of 4.31%. Admittedly, interim and final dividend payments were cancelled for 2020-21 but this was a first in BT’s 38 years as a private company.

Last year the telecoms business returned to form, meeting its target of a 7.7p dividend per share in FY22. BT will need to continue distributing regular dividends if it’s to offer shareholders a total return that outperforms inflation, in my view.

Notably, the company’s 5G network now covers more than 50% of the UK population. BT also recently established a sports TV joint venture with US media company Warner Bros Discovery. The deal, which could be worth up to £633m to BT, covers rights to the Premier League, the Champions League, and the Olympics.

Not without risks

BT’s financials aren’t all rosy. Revenue was down 2% for FY22. In addition, normalised free cash flow fell by 5% to £1.4bn as a result of higher cash capital expenditure.

The business expects modest change on these metrics for FY23, targeting a return to revenue growth and normalised free cash flow between £1.3bn-£1.5bn.

BT is also embroiled in a pay dispute with the Communications and Workers Union (CWU), which represents about 40% of the company’s workforce. The CWU recently rejected BT’s offer of wage rises between 3% and 8%, pushing for 10% increases instead.

Shareholders will hope the company can reach a successful resolution in negotiations. If not, a planned strike action ballot in early June could hurt the BT share price.

Can BT shares help me fight inflation?

The CPI inflation rate hit 9% in April and the Bank of England foresees it reaching 10% this year. This creates a tough macroeconomic environment for the stock market. Accordingly, right now I’m selective about investing in equities that can at least preserve and ideally grow the value of my portfolio.

BT trades at a price-to-earnings ratio of 14.29, which makes it reasonably valued, although not remarkably cheap. What I do particularly like is the potential in the Warner Bros joint venture, strong earnings forecasts and the stock’s healthy dividend yield. These collectively outweigh potential headwinds facing the company in my opinion.

Overall, I consider BT shares to be a good investment to help inflation-proof my portfolio in 2022.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Charlie Carman has no position in any of the 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.

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