Does the BT stock fall make it a no-brainer buy now?

Telecommunication companies BT (LSE: BT.A) shares dived 4% in two trading days last week. It is now down 86% from its peak in late 1999.

This level of volatility is unusual for one of the most traded stocks in the world London Stock Exchangebut it can be a chance for me to pick up shares in cheap.

I can see several compelling reasons to open a position within the company.

Dividend returns and stock price growth

BT’s share price peaked during the dotcom boom in 1999. Investors piled in, dazzled by the potential of the new internet. The stock plummeted shortly thereafter and has never recovered, with the stock currently still down 86% or more from that high.

A return to that level seems unlikely. In fact, I think this £14.8bn telecoms business is operating in a market that is too saturated for faster growth, which means I doubt the stock is going to rise in value.

On the other hand, the company offers its shareholders an impressive annual return of 5.43%. This is one of the highest dividend returns I’ve ever had FTSE 100 company. To put it into perspective, even with rising interest rates, I only receive 2%-3% per year from most Cash ISAs.

If I could count on an annual payout of £543 for every £10,000 invested I would be very happy. And except for 2020 due to the pandemic, BT has been offering regular and generous dividends for decades.

The stock also looks cheap. A price-to-earnings ratio of around eight compares very favorably to the FTSE 100 average of 14 and the UK telecommunications sector just over 17. All other things being equal, I would expect the share price to grow towards the industry average, which would net me another return .

The big problem here is that, in this case, it should not be the same.

Debt the size of Iceland

The elephant in the room with BT is its eye-watering pile of debt – the company currently owes around £19bn. That’s about the same as the GDP of an entire country like Iceland.

Even £5bn more than the company’s own market cap. If management wants to give the company away for free, then the new owner will be billions worse off.

Not all debt is bad, of course. But the reason for BT’s problem is the staff pension deficit that the company has not really got a handle on. And the deficit is like a leaky pipe. It will cause problems until it is fixed. To emphasize this, the debt rose over one billion in the last year alone.

What does this mean for me? Well, dividends that look attractive now can be reduced or eliminated to free up cash to deal with debt. That makes playing risky, in the book.

I bought it?

So while there are positives about these companies, the reality is that low dividend paying companies are now plentiful in the UK. The high level of debt means that I will keep a distance between myself and this stock.