This week’s profit warning by BT Group plc (LON:BT.A) (LSE:BT.A.L) surprised me and the stock market. Its shares have fallen by 20.2% at the time of writing since the news was released. Today, BT’s shares are higher by about 1% or 2%, but this could be down to the closing of short positions i.e. a dead cat bounce.
BT’s future outlook is now more uncertain in my opinion. I read yesterday the Italian authorities/regulator is conducting its own investigation into the company’s Italian division. Therefore, I feel this story could have legs and I believe BT’s share price may end up being volatile and potentially underperforming other stocks in the near term.
I’m still optimistic about the company’s long term future and feel it has investment appeal. I think its strategy of becoming a quad play business in a space which is becoming more blurred between telecoms, technology and media companies makes complete sense. However, I also feel it has invested heavily in sports rights when it could have used that cash for better use elsewhere.
Still, at least it has a means of better differentiating itself from rivals. This could serve it well in the long run and adds to its investment appeal. But it’s the opportunities to cross sell within the EE customer base and within its superfast fibre segment which make me optimistic.
After its share price fall, BT yields 5.1%. This puts it in the realm of high-yielding shares such as HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L), Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L), SSE PLC (LON:SSE) (LSE:SSE.L) and Persimmon plc (LON:PSN) (LSE:PSN.L). HSBC’s shares yield 6%, SSE’s stock yields 6.2%, Shell’s shares have a yield of 6.3% and Persimmon’s stock yields 5.7%.
In my opinion, BT has long term dividend appeal. However, I think its shares could be volatile in the short run and its dividend growth could disappoint after its profit warning. For me, high volatility is not a big problem as I’m a long term investor, but if I needed the income from my investments in the short run I might look somewhere other than BT because of its relatively high uncertainty.