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Why I think now is the time to buy BT shares for the long term

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.

The share price of BT (LSE:BT.A) has taken a hammering over the last several months. The price has plummeted 33% since July, despite revenue being up 1% year on year. This is one reason why I think now could be the perfect time to add BT shares to my portfolio for the long term.

Unfounded panic?

The price of BT shares has dropped, in part, due to investor anxiety over the company’s recent announcement that it would need to increase the amount it saves to meet its network investment obligations. 

I feel that the level of panic over BT’s spending obligations is unfounded. It’s perhaps even exacerbated by the current market conditions. The company needs to invest billions in upgrading, maintaining, and extending the infrastructure that runs the UK’s networks. However, that investment is expanding future revenue potential for the company.

The fibre and 5G connections that BT is expanding will be the backbone of its services for over a decade. More expensive ultrafast fibre connections made up 62% of BT’s FTTP (Fibre to the Premises) orders in Q2. This number should continue to rise as the company averages 62,000 new FTTP connections a week.

That’s why I find the current price-to-earnings (P/E) ratio incredibly attractive. Currently sitting at just below 7, I think the P/E ratio makes BT one of the best-value shares around.

The current BT share price of £1.20 is close to the lowest it has ever been. I’m also intrigued by BT’s 12-month average share target price of £1.98. If accurate, that could represent a 65% increase in my investment.

Holding for the long term

Although promising, I’m not necessarily looking at what return I can get over the next 12 months. I’m looking to potentially buy and hold BT shares for the long term. That’s because BT has historically been one of the FTSE’s top five highest-paying dividend stocks. When looking at a stock that pays dividends, I’m always planning to reinvest. At an average of around 6%, BT dividends represent an excellent opportunity for me to reinvest in BT with every payment.

With a looming recession, there’s always the risk that BT will continue to drop — potentially even over the next couple of years. This period of economic uncertainty makes any investment a riskier than normal proposition. However, I’m looking at keeping BT shares in my portfolio for over a decade. The generous dividend payments reassure me that buying now, even if it isn’t the bottom, should be worth it in the long term as I reinvest the dividends.

To be cautious, I plan to add BT shares to my portfolio over the next few weeks and months. That way, I can offset the possibility that the share price doesn’t stabilise and begin to increase towards its target.

I’ll keep a close eye on BT as the global economic situation unfolds. If the share price does continue to drop, I’ll be looking to invest more at opportune moments.

The post Why I think now is the time to buy BT shares for the long term appeared first on The Motley Fool UK.

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Matt Cook 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.