BT Group(LSE: BT-A) shares have lost 40% since late November 2015.
A £530m write down due to accounting practices at its Italian business, followed by a £42m fine for a regulatory failure in March (and estimated compensation of £300m), haven't help. But at 302p, I think I'm seeing an oversold income play, with BT's dividend yield having been boosted.
In fact, the 15.4p dividend just announced for the year to March 2017 represents a 5.1% yield. It looks safe, for now at least, with BT saying its "policy remains progressive" - though growth this year will be "lower than the 10% previously anticipated".
It's been a tough year, resulting in adjusted earnings per share dropping 9%, reported EPS down 33%, and revenue for the 2017-18 year now expected to be broadly flat. The point of maximum pessimism can be a great time to buy a share, but is that where we are?
The biggest risk is whether the dividend will be sufficiently covered in future years to be sustainable, and we're currently looking at cover of close to 1.9 times by adjusted EPS. That's reasonable (though I'd really like to see cover of 2 times or better), but it could come under pressure with dividend rises anticipated for the next couple of years.
I'd actually be happy to see BT's dividend frozen at the current level for a few years, with 5% a pretty good annual income. On that basis, I still think I'm seeing an attractive annual payout.
BT always faces the problem of being in a tightly regulated industry, but it's managed that for a long time now and is still paying its dividends. The next two years will be crucial, but I think the pessimists are wrong.
If you want a safer dividend, perhaps to offset any risk from BT in your portfolio, Legal & General(LSE: LGEN) is one of my favourites right now.
We've seen five years of double-digit earnings growth, leading to a near doubling in the dividend, with forecasts for this year and next suggesting yields of 6.2% and 6.6%, respectively. Earnings growth is set to slow slightly, but dividend cover of around 1.4 times should be adequate - and as the UK's leading pensions and investment manager, the company should have sufficient long-term visibility to maintain dividends with relatively low risk.
There's no guarantee, of course, and Legal & General was forced to cut its dividend as a result of the financial crisis. But as it's better managed than many of its rivals, the cut was not as severe as some, and dividend growth resumed impressively quickly.
If you'd snapped up L&G shares for around 40p at the worst point in the crisis, the predicted dividend for this year would yield 38% on your purchase price - and if that's not a strong argument for buying good long-term dividend stocks when they're down, I don't know what is. Oh, and you'd be sitting on a six-bagger in the share price stakes, too.
The really big attraction of L&G dividends for me is that I see plenty of margin for safety in those big 6%-plus yields. I honestly don't know if 6% is sustainable in the long term, and most big yields tend to fluctuate. But we could see the yield drop to 5% and I think it would still be great value.
Alan Oscroft 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.