For years I’ve been worried about dividends from BT Group (LSE: BT.A) shares. I’ve always looked at the company’s capital expenditure (capex), and its high net debt levels, and wondered how long it could keep the cash payments going.
But then, BT keeps managing it. And even though the share price is up a bit this year, we’re still looking at a forecast dividend yield of 5.6%.
Dividend forecasts
If those dividends keep on going at their current levels, we might have a nice long-term income investment here. And if current broker forecasts are anything to go by, they look good, at least until 2027.
The figues in the table below are all based on a BT share price of 142.5p, at market close on 4 October. They show 2024’s results, with the next three years of forecasts.
Year
Dividend
Change
Yield
EPS
Cover
P/E
2024
8.0p
+3.9
5.6%
8.6p
1.1x
16.6
2025
8.2p
+2.5%
5.8%
14.3p
1.7x
10.0
2026
8.3p
+1.2%
5.8%
15.3p
1.8x
9.3
2027
8.2p
-1.2%
5.8%
15.3p
1.9x
9.3
(Sources: Yahoo, MarketScreener, Company reports)
Why do I think BT dividends might be safer now? It’s partly because the company says it’s passed the point of peak capex for full-fibre broadband. And it’s partly because forecasts show strong enough earnings to provide decent dividend cover.
Rising debt
That debt hasn’t gone away though. In fact, net debt is a bit higher this year. It’s up 3.1% to £19.5bn, from £18.9bn a year previously. Anlaysts expect it to grow a bit more in the next few years too.
I think it pays to take a moment to let that sink in. BT’s net debt is about the same as its total annual revenue. And it’s 2.4 times the 2023-24 full-year EBITDA.
I’ve often thought it would be better to use surplus cash to reduce the debt rather than pay dividends. But it looks like it wouldn’t have a huge effect.
Dividend cost
In the last full year, dividends cost £759m. Debt repayments in the period came to £1.68bn, with £865m paid in interest.
So the dividend cash amounted to only 3.9% of BT’s net debt. I find that both reassuring and scary. It makes me think BT’s likely to keep paying the dividends, because they don’t actually cost that much by comparison. But it gives me a feel for just how big the debt is.
Progressive
The board said: “We reconfirm our progressive dividend policy which is to maintain or grow the dividend each year“. But it added some stuff about “taking into consideration a number of factors“.
This highlights that there’s never a guarantee when it comes to dividends. And investors have to be aware that the cash just might not turn up.
I’m still torn over whether to buy BT shares. I really do fear that the debt could come back and bite. It’s been built up by the massive cost of fibre rollout. And BT seems to be pinning its hopes on big takeup. I fear customers might be slow to switch.
But a long-term reliable yield would be really nice.
The post What’s the dividend forecast for BT shares? Here’s what the experts say appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
BT phone home! Are shares in the British telecoms giant finally looking to the skies?
Where might the BT share price go in the next 12 months? Here’s what the experts say
BT isn’t the only FTSE 100 stock hitting a 52-week high. But which would I buy now?
Is the BT share price destined to follow the way of Rolls-Royce?
Has the BT share price gone too far?
Alan Oscroft has no position in any of the 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.
