BT (LSE: BT) shares have performed pretty well this year, especially considering the wider market volatility. The share price is up 5% year to date, and 9% in the past six months. For context, the FTSE 100 is down 3.7% year to date and only up 0.04% over a six-month period.
That being said, the shares are worth almost 5% less than they were a year ago. So, is now the time for me to buy this Footsie stock? I think so — let me explain why.
Why I like BT shares
One of the primary reasons I am looking to buy BT stock is because I think it could act as a hedge for rising inflation. This is for two reasons. Firstly, BT has a lot of infrastructure, meaning that it requires little expenditure on new projects, which would now be more costly in price. Secondly, it has a strong consumer base and a monopolistic pricing plan. This means that BT can change its prices in line with rising inflation. Both of these reasons make BT a ‘defensive’ stock, i.e. one that performs well during times of market uncertainty.
BT also has an appealing valuation. The shares are currently trading on a forward price-to-earnings (P/E) ratio of 9. This looks cheap to me, especially considering competitor Vodafone trades on a higher P/E ratio of 12. In addition to this, BT has a juicy dividend yield of 4.2%. Whilst this won’t completely cover me from inflation, it does offer me the chance for some passive income to top up my portfolio.
A final reason why I like BT is due to the fact that it can give me a stake in the digital revolution. It is massively expanding its Openreach ultrafast broadband division, which was rolled out to 3m homes in the first three months of 2022. Its 5G network also covers over half of the UK. This highlights the firm’s dominance in the sector.
Not out of the woods yet
I do see some risks for BT, most notably the rising cost of living. While BT does provide a hedge against inflation, it cannot stop the pressure that many households are feeling from rising costs. If BT raises its costs by too much, then it could start to lose customers. It already operates with razor-thin margins so cannot afford for this to happen.
BT is also facing pressure from the UK competition watchdog regarding its BT Sport and Warner Bros Discovery merger. If the merger is stopped, it could dampen investors’ appetite for the shares.
Why I am buying
While the cost-of-living crisis could place pressure on BT shares, I think that the ‘defensive’ nature of the stock will outweigh this risk. People need broadband, and BT is the UK’s leading provider. In addition to this, the stock looks cheap in comparison to the competition and is leading the charge towards 5G coverage and ultrafast broadband. For those reasons, I am looking to add a BT position to my portfolio today.
Before you consider BT, you’ll want to hear this.
Motley Fool UK’s Director of Investing Mark Rogers has just revealed what he believes could be the 6 best shares for investors to buy right now… and BT wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 shares that are currently better buys.
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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.