Stock in telecommunications behemoth BT Group (LSE: BT-A) rocketed in early trading this morning as market participants responded positively to the latest interim numbers from the FTSE 100 firm.
With the share price finally starting to show signs of a sustained rebound, should previously reluctant investors particularly those focused on generating income from their capital now think about adding the stock to their portfolios? I think so.
Encouraging results
Reported pre-tax profit and adjusted earnings before interest, tax, depreciation, and amortisation(EBITDA) came in at 1.34bn and 3.68bn respectively over the first half of BTs financial year as a result of costs being trimmed and higher volumes of expensive smartphones being sold by its consumer business.The pre-tax profit number was an increase of 24%.
Elsewhere, the company stated that it continued to see improvement in customer experience metrics, an increase in the speed of ultrafast broadband being deployed and positive progress in transforming itsoperating model.
It wasnt all good news, however. At 11.59bn, reported revenue was 2% lower over the six months to the end of September with BTs consumer arm impacted by price reductions at Openreach and relatively poor performance at its enterprise business. Free cash flow also fell 22% to 974m, partly as a result of capital expenditure climbing by 140m to 1.83bn.
Having labelledtodays numbers as encouraging, outgoing CEO Gavin Patterson reflected in his statement to shareholders that the company was beginning to see the benefits of its strategy to simplify and strengthen the business and improve efficiency.
He went on to remark that guidance on the full year hadnt changed and that, despite growing pressure from rivals, BT still expected EBITDA to be in the upper half of the 7.3bn-7.4bn range.
Dividend star
For some time now, Ive felt that the market was being too harsh on BT. Almost three years ago, the share price was close to breaching 500p. By May 2018, it had fallen to as low as 203p a reduction of just under 60%. Even today, the shares still change hands on a fairly cheap price-to-earnings (P/E) ratio of 10.
Despite the fact that BTs new leader will be paid more than his predecessor (whose remuneration was already a contentious issue among shareholders), Im also optimistic about the arrival of ex-Worldpay boss Philip Jansen next year. While increased competition and a sizeable pension deficit mean he will still have his work cut out, confirmation that the company will not be spinning off Openreach, despite opposition from activist investors, does remove some uncertainty, at least in the short term.
Arguably BTs biggest draw, however, remains its dividend. Today, the company announced an interim payout of 4.62p per shareor 30% of last years total cash return to shareholders (15.4p). Thats a cut of 4.7% from the 4.85p given back to owners in the previous financial year.
Thats not to say that income investors should be unduly worried.Assuming analyst projections are correct, BT is expected to hand back 15p per share in 2018/19. Taking todays share price move into account, that leaves a yield of around 5.7%. Given that interest rates are unlikely to rise significantly any time soon, thats certainly not to be sniffed at. Despite the aforementioned fall in free cash flow, payouts will also likely be covered 1.7 times by profits, which is an improvement on last year.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled “The Foolish Guide To Financial Independence”, which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you’re interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?