Should I buy shares in BP and BT for my ISA?
The Motley Fool
Published Apr 28, 2019 11:00
We’re only in the first month of the new 2019/20 ISA allowance, but if you want to use up as much of the £20,000 maximum that you can, it’s never too soon to start.
Today, I’m looking at BP (LSE: LON:BP) and BT Group (LSE: LON:BT.A) and asking whether I’d buy them for my ISA. My answer is yes and maybe, respectively. Let me explain why.
Forget oil prices Over the past few years, oil investors have been almost singularly focused on the price of a barrel. And I recently explained why I think BP shares are cheap, now that the price is recovering.
But when it comes to buying an oil giant like BP for your ISA, I reckon the oil price should play no real part in your decision. Because of the tax advantages, the shares I’ll select for an ISA (or SIPP) have always been ones with the longest of long-term views.
If you’re looking at a smaller oily whose long-term prospects could be damaged by short-term oil price fluctuations, I’d argue they shouldn’t be going anywhere near your ISA. But whenever it heads up or down due to short-term concerns, the oil price will always revert to a profitable level in the long term — it has to, or whole countries will go bust.
Dividend consistency is also something I look for in an ISA stock, and BP scores nicely on that count — though not as impressively as Royal Dutch Shell (LON:RDSa), which has never cut its dividend since World War II. BP’s dividend was suspended due to the Deepwater Horizon disaster, but it very quickly regained its strength, and we’ve been looking at yields of 5%-6% over the past few years. BP is a definite yes for me.
Beware debt At the third-quarter stage at 31 December, BT was sitting on adjusted net debt of £11.11bn, up from £8.92bn a year ago. At 1.5 times estimated full-year EBITDA (annualised from the nine-month figure of £5.55bn), it’s not outrageous.
But then there’s the pension fund deficit , estimated at £5bn at 31 December — up from £4.5bn at 30 September, so it’s going in the wrong direction. If we add that to the debt figure, the total comes close to 2.2 times EBITDA, and that’s surely stretching things.
Get The App
But one reason for optimism is that, even with the twin afflictions of debt and deficit, BT has been keeping its dividend payments going. And the share price has plummeted over the past few years, losing more than half its value since the end of October 2015.
That’s boosted the dividend yield to nearly 7% and pushed the P/E down as low as 8.5, and that sort of valuation might be a good one even with the debt and deficit problems.
The other plus point for BT, for me, is the company’s restructuring strategy which continues under new boss Philip Jansen. We haven’t seen a quarterly report under Jansen yet, as Gavin Patterson was still in the hot seat at Q3 time, but full-year results are due on 10 May. I’ll wait until I see those.
us better investors.
Motley Fool UK 2019
First published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.