BT (LSE:BT.A) shares are exceptionally popular amongst investors here in the UK. The telecoms infrastructure giant has been around for over 40 years. So, it’s not surprising that many believe it to be a safe haven for passive income.
But has its performance over the last decade lived up to its reputation? And will that change in the future? Let’s take a look.
Reviewing the performance of BT shares
Going back to February 2012, BT shares were trading at around 214p. Today, it sits at 193p. So, that’s a 10% decline over 10 years. For comparison’s sake, the FTSE 100 index has delivered gains of 29% over the same period.
Clearly, BT hasn’t been a wise investment from a capital gains perspective. But does that story change when I consider the passive income generated from dividend payments?
Let’s say I invested £1,000 into BT shares back in 2012. Excluding the cost of trading and any other fees, I would have bought 467 shares. If I didn’t buy more or sell any of my investment other the years, I would have received around £336 in dividends – or the equivalent of a 33.6% gain.
Blending the two results gives the final return of 23.6%, not including the effects of inflation. So, even with the additional income through dividends, BT shares have failed to outperform the market over the last 10 years. Suddenly this vastly popular stock doesn’t sound like a smart investment. But could that change moving forward?
Growth on the horizon?
Between 2012 and 2016, BT shares had actually delivered impressive performance. But as I’ve previously explored, a complacent management team enabled competitors to steal market share, resulting in five years of share price decline.
Today, it seems its leadership is getting its act together. Legacy products are being phased out, while investment in its fibre-to-the-premises (FTTP) and its 5G network infrastructure are rising. Looking at the latest trading update, BT has equipped 6.5 million homes with fibre and is seemingly on track to hit its target of 25 million by 2025. The number of 5G customers has also jumped by 1.2 million, reaching 6.4 million in total.
Meanwhile, the firm is undergoing restructuring to trim the fat delivering an estimated £2bn in gross annualised savings by 2024 – half of which has already been achieved.
Needless to say, this is quite encouraging news. So it’s not surprising to see BT shares climb over 57% in the last 12 months alone.
Time to buy?
As impressive as the progress has been, I remain unsold on the idea of buying BT shares. While its days of lacklustre performance may be over, there remains a long road ahead. Yes, operations have drastically improved, but the financials still need some work.
The balance sheet is riddled with debt that’s adding significant pressure to profit margins. And that won’t change until management can reduce the firm’s leverage.
Personally, I’m going to wait until the company starts wiping out a good chunk of its financial obligations before considering this business for my portfolio.
Zaven Boyrazian 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.
