2 catalysts for BT shares to dial up its stock in 2023

Telco companies tend to hold up better than most during economic downturns. But, BT (LSE: BT.A) shares have not been profitable in the past year, falling more than 30%. So, there are two catalysts that I think could bring the stock back this year.

1. Efficient cost savings

BT is focused on reducing costs and improving efficiency. The plan includes cutting costs by £3 billion over the next three years and merging the Enterprise and Global divisions. This type of aggressive cost control has the potential to increase its margin, which should also give BT shares a boost. The company can use the money saved from this step for several purposes.

For one, it could reinvest into the growing Openreach division. This will help accelerate revenue growth and stave off increasingly tough competition. After all, like VodafoneSky, and Liberty Media everyone is hot on BT’s heels to grab as much market share as possible as 5G rolls out and more households use fiber internet.

Second, it can start paying off debts worth £18.3bn. With a debt-to-equity ratio of 115.6%, the FTSE 100 the company’s balance sheet is not in the best shape. And increasing financials can attract investors such as myself.

Another goal is to use the cash reserves to pay larger dividends and/or buy back shares. With a dividend yield of 6.5%, BT shares currently have a healthy dividend cover of 2.6 times. This is good news that I invest for passive income as a guarantee of a margin of safety. Operating improvements may also expand the dividend cap, which will give management room to increase dividend payouts. If so, I can see the stock gaining popularity quickly.

2. Regulatory approval

Another catalyst for this year will be passing some regulatory hurdles. If the conglomerate can overcome this, I expect the stock to consolidate at higher levels.

First and foremost is the agreement on Openreach’s new prices for competitors using fiber cables. If approved, I can see BT shares benefiting, as Openreach is the fastest growing division.

In addition, the company is still under scrutiny for mid-contract price increases, which Ofgem wants. The regulator is checking whether the increase is sufficiently transparent. And if it gets it wrong, BT could face huge fines that will affect its bottom line. The group’s plan to increase prices the most if the contract customers with 3.9% plus the current rate of inflation in April also does not help its optics.

With all this said, I am not yet interested in becoming an investor in BT. While the dividend yield certainly looks attractive given its potential as a passive income stock, there is no guarantee that it will remain at that level for the next few years. This is particularly the case if businesses have to pay hefty fines and/or absorb losses around Openreach customers. So, I want to see the improvement of the balance sheet and the regulatory landscape before investing.