Are BT shares a ‘buy’ after this news?

Dice engraved with the words buy and sell
Dice engraved with the words buy and sell

The BT(LSE: BT.A) share price surged 10% yesterday after the FTSE 100 telecommunications group reported half-year results. Investors were clearly happy with the numbers. But were the interim results good enough to convince me to buy the shares? No. Here’s why.

Dividend cut

Undeniably, there were positives from BT’s half-year report. Adjusted basic earnings per share rose 4% to 13.3p per share and the group advised that it expects EBITDA for the full-year to be in the upper half of its £7.3bn-£7.4bn range. Furthermore, outgoing CEO Gavin Patterson said that the company is “successfully delivering” against the core pillars of its strategy.

Yet a closer analysis of the numbers also reveals some pretty ugly figures. For example, for the half year, it reported revenue fell 2%. That’s not a great result. Then there’s cash flow. On a reported basis, net cash flow from operating activities fell 71% to £754m, while on an adjusted basis, normalised free cash flow declined 22% to £974m. For a company with a huge amount of debt and a gigantic pension to pay, a drop in cash flow is not good.

Next, there’s the half-year dividend, which was cut by 5%. That’s certainly not what I like to see as a dividend investor, and I think there could be further dividend cuts to come.

Lastly, there’s net debt, which increased by 25% to £11,895m.

So overall, a decline in revenue and cash flow, a dividend cut and a sharp increase in debt. Not much to get excited about, in my view. As such, I’m avoiding BT shares for now.

Dividend hike

One FTSE 100 dividend stock I would be more likely to buy right now is oil giant BP(LSE: BP). With the oil price having recovered from its 2016 decline, profits at BP are on the rise and this could mean larger dividend payouts and share price gains for investors in the future. My colleague Kevin Godbold even thinks BP’s share price could surge to 800p, if the oil price holds up.

BP reported Q3 results on Tuesday and the numbers made for good reading. Reporting its “highest quarterly result” in five years, underlying replacement cost profit for the quarter came in a $3.8bn, more than double last year’s figure, and operating cash flow for the first nine months of the year jumped 6%.

Debt was down on last year’s figure and the company bought back $139m worth of shares during the quarter. Furthermore, management expressed confidence in the outlook by lifting the quarterly dividend by 2.5% to 10.25 cents per share, which is great news for income investors.

Of course, BP shares are not without risk, as the stock is essentially a play on the oil price. If the oil price plummets again, BP’s profits could fall. However, with the shares trading on a forward P/E ratio of 12.4 and offering investors a fantastic dividend yield of around 5.7%, I believe there’s some decent value on the table right now.

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Edward Sheldon has no position in any 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.