Why BT could be a better buy than Vodafone

The BT Group plc (LON:BT.A) (BT.A.L) share price could outperform Vodafone Group plc (LON:VOD) (VOD.L) in my opinion

BT Group plc
BT Group plc

I have been a long-term holder of shares in BT Group plc (LON:BT.A) (BT.A.L) since 2007 and after analysing the company I think the prospects for the business look good.

One of my most profitable share purchases was buying BT on 29 April 2009 at 89.39p including stamp duty and dealing costs. At one point the BT share price traded at around 500p, meaning that investment delivered more than 500% of capital gains. And then the dividends received must be added on top.

Let’s look at BT’s share price today. At the time of writing the cost to buy a BT share is around 315p. However, that gives it a PE of just 9.51, which I feel is a bargain price. The dividend yield seems to be relatively tasty too, at 4.46%.

BT has been consistently profitable over the past five years, a sign I look for when investing in a share. The dividend cover in 2016 was 2.37, which gives the company plenty of scope to maintain and increase its dividend payments in my opinion. Further, its acquisition of EE and the potential synergies which this could bring also makes me upbeat on the company’s long-term dividend growth potential.

Let’s compare BT shares to Vodafone Group plc (LON:VOD) (VOD.L), which I also hold. The dividend yield here is 5.61%, which is higher than BT’s dividend yield. However, the cover in 2016 was just 0.44. This means that Vodafone may have to borrow money or sell assets to pay its current level of dividend, which may not be a sustainable situation for the long term investor.

Vodafone is a diversified company with operations in a wide range of sectors and geographies. In my opinion, its dividend yield is high, but there may be better dividend options available elsewhere due to its relatively low dividend coverage ratio.

For me, the BT share price seems to hold more investment appeal at current levels than Vodafone.

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