£20,000 invested in BT (LSE: BT.A) shares just a year ago is now worth £27,176, including dividends. These totalled £995 over the period, while the share price gain was £6,181. It means the annual total return came in at 35.9%!

But there could be a lot more to come. The company’s earnings growth is strong, its full‑fibre rollout is nearing peak spend, and cost‑cutting is feeding through to higher margins.

Together, these drivers point to a business with rising cash generation and a valuation that still looks unusually low for a national telecoms champion.

So what sort of return could investors be looking at here?

How much potential price gain?

In stock markets, price and value serve very different roles. Price represents the level at which market participants are willing to transact. But value reflects the economic reality of the business and its future cash flows.

For long-term investors, the gap between these measures is highly significant. Market prices tend to converge towards ‘fair value’ over extended periods. This is why recognising that difference can be a key source of enhanced investment returns over time.

To estimate fair value, discounted cash flow (DCF) analysis projects future cash flows and discounts them back to today. The more uncertain those projections are, the higher the return investors demand, increasing the discount rate.

DCF model outcomes can vary, according to the different assumptions used by analysts. Using my own framework — including an 8.5% discount rate — BT shares are 40% undervalued at their current £2.16. That implies a fair value of £3.60 — substantially higher than the present level.

If prices continue to converge toward fair value, this could be a superb buying opportunity if those DCF assumptions prove accurate.

How much dividend income?

Analysts project BT’s dividend yield will be 4.2% this year, although that could go down or up over the years. So a £20,000 holding in the firm (the same as mine) could make investors £10,417 in dividends after 10 years and £50,353 after 30 years.

The figures factor in the payouts being reinvested into the stock to capture the full turbocharging power of dividend compounding.

After 30 years, the total value of the holding would be £70,353 (including the original £20,000 investment). And this would pay an annual income from dividends alone of £2,955.

My investment view

Share price and dividend gains are ultimately supported by earnings growth. A risk for BT is any sudden spike in capital expenditure on network upgrades that could squeeze free cash flow. Another is any increase in regulatory pressure on broadband pricing. Nevertheless, analysts forecast that BT’s earnings will grow by an average of 14.2% a year over the medium term.

This looks reasonable to me considering its Q3 2025 results, released on 5 February this year. The company hit record full‑fibre momentum, passing more than 1m premises for the eighth consecutive quarter. And it affirmed that it remains on track for cash‑flow of around £2bn next year and £3bn by the end of the decade.

In sum, I will be adding to my BT holding very shortly. Meanwhile, other deeply underpriced and high-dividend-yielding stocks have also caught my attention recently.