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2025’s been quite a transformative year for BT (LSE:BT.A) shares. The British telecommunication giant has been busy executing its recently-launched turnaround strategy to try and drastically improve the underlying fundamentals. And so far, the early results have been quite encouraging, boosting investor sentiment and elevating the share price by around 40% since the start of the year.
Yet, even with this strong share price appreciation, the FTSE 100 enterprise still offers a robust 4% dividend yield. And if the analyst forecasts are to be believed, payouts in 2026 and beyond could boost this payout even further. So should income investors be eying up BT for their portfolios?
The bull case
Today, any investor with a £1,000 lump sum of cash can buy roughly 500 BT shares, unlocking an annual passive income of £40.80 in the process. And looking at the firm’s recent operational performance, this might seem like quite a good idea.
Since new CEO Alison Kirkby moved into the corner office in early 2024, BT’s delivered over £900m in annualised savings, aggressively accelerated its fibre optic rollout, begun chipping away at the problematic pension deficit, and pushed earnings growth back into double-digit territory.
Looking further ahead, management’s aiming to deliver £2bn of annual free cash flow generation within the next two years, before boosting this to £3bn by 2030. Not only does this give management the flexibility to continue mending the balance sheet, but it also returns more capital to shareholders via dividends and share buybacks.
Combining all this with the fact that BT shares only trade at a forward price-to-earnings ratio of 11.7, the stock seems to be unusually cheap considering what’s coming down the pipe.
The bear case
As encouraging as the turnaround progress has been, there remain several weak spots that have yet to be mended. The most prominent concern among institutional investors is BT’s revenue growth, or rather the lack of it.
Intense competition from alternative providers is luring customers away. And while the number of BT’s fibre customers is now at record highs, most of these have simply upgraded from an older broadband connection.
To management’s credit, improvements in customer service have translated into a higher net promoter score, suggesting the cultivation of some brand loyalty. But so far, that’s failed to materialise into top-line expansion. And with areas of the business like Openreach still suffering from customer attrition, questions remain about the future of BT’s top line even as margins improve.
The bottom line
All things considered, BT seems to be moving in the right direction. But there’s still a long road ahead for Kirkby to repair the damage of previous mismanagement. Even if BT hits all its free cash flow targets, there remains over £23bn of debts & equivalents to address.
Disposing of underperforming segments like Openreach could provide a large injection of capital to accelerate the group’s deleveraging efforts. But such decisions could also cause operational disruptions.
Nevertheless, with management seemingly making smart moves, BT shares could prove to be a lucrative turnaround opportunity for patient investors happy to receive a 4% dividend yield while they wait. As such, now might be a good time to dig a bit deeper into the future prospects of this large-cap enterprise.
