How many cheap BT shares does an investor need to get £100 in monthly ISA income?

After years of struggle, BT (LSE: BT.A) shares are suddenly performing like a monster growth stock.

I’m pleased but also frustrated. I wrote about it again and again last year, summoning up the courage to buy what was a troubled recovery play with an uncertain future. Then bottled it.

Well, now the future’s arrived (or at least, the last 12 months of it), and it’s bright. The shares have rocketed 55% over the last year, and the momentum continues, with another 10% jump in the last month alone.

And that’s happening in a volatile market, when investors might be expected to shy away from riskier plays like BT Group. 

Can this FTSE 100 stock maintain its momentum?

The shares got a further lift on 18 March following reports that Indian billionaire Sunil Bharti Mittal has hinted he may increase his stake in the company. Mittal already holds 24.5% of BT.

BT has had a brilliant year as it continues its restructuring efforts under CEO Allison Kirkby, but it’s far from risk free. On 30 January, it reported a 3% drop in Q3 revenues to £5.18bn, due to weaker phone sales and struggles in its business unit.

Its Openreach broadband network has swallowed up billions and while the capital investment phase is largely complete, competition’s fierce as smaller, nimbler rivals eat into BT’s customer base.

Lest we forget, there’s the pension scheme, a hefty legacy obligation that still looms over the balance sheet. Net debt’s a hefty £20bn. BT’s market-cap is just £15.6bn.

The company’s plan to replace tens of thousands of staff with artificial intelligence (AI) may also be more ambitious than the board realises.

BT isn’t just about growth. Today, the stock offers a trailing dividend yield of 4.96%. Sadly, that’s lower than the 6-7% yield seen a year ago. That’s down to the share price rally. 

In 2024, BT paid a full-year dividend per share of 7.7p, with forecasts predicting a 6% rise to 8.16p this year.

The dividend yield’s dropped

So how many BT shares would an investor need to generate £100 a month in their Stocks and Shares ISA? Crunching the numbers, they’d need 13,937. At today’s price of 161.45p, that would require an outlay of roughly £22,500, more than the annual ISA allowance. That’s a significant sum for any private investor to put into a single company.

With the shares still trading at a modest price-to-earnings ratio of just 8.7, BT still looks tempting for investors willing to park smaller sums in the stock.

The 16 analysts covering BT have issued a median price target of 189.8p for the next year. If accurate, that’s an increase of almost 18% from today. Combined with the yield, this could offer investors a total return of 23%.

That’s enticing but forecasts are never guaranteed and BT may struggle to maintain its momentum, given wider economic struggles and competitive pressures.

BT Group’s worth considering for investors seeking both income and growth, but I’d advise caution. The stock’s come a long way in a short time, and given the challenges it will take a lot to sustain its recent pace. 

The post How many cheap BT shares does an investor need to get £100 in monthly ISA income? appeared first on The Motley Fool UK.

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Harvey Jones 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.

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