With growing uncertainty plaguing the stock market, Investors are increasingly interested in the long-term BT Group Plc (LSE:BT.A) dividend forecast. The company lies at the heart of the British telecommunication sector but has operations spanning 180 countries worldwide.
BT is a global leader in fixed mobile networks, provides networking, security, and connectivity solutions to businesses, and is the leading force in deploying the UK’s 5G communications network. This vast product and service portfolio, paired with a current 5.7% dividend yield, makes it a popular UK stock among income investors.
But can it maintain and grow this impressive payout in the long run? Let’s take a look.
How are the financials looking in 2023 so far?
BT Group’s fiscal year ends in March. But on 2 February, management provided investors a nine-month and third-quarter trading update. During the three months leading up to the end of December 2022, total revenue came in at £5.21bn. That’s actually down by 3% versus a year ago and shy by 1.14% of the £5.27bn predicted by analysts.
While a missed target can be frustrating, it’s worth pointing out that part of the reason stems from the firm’s decision to spin BT Sports into its joint venture with Warner Bros Discovery. Ignoring this deal’s impact reveals that revenue increased by around £65m.
In terms of profitability, things are a bit murkier. Reported pre-tax profits fell by 15%. However, the company has started the sudden drop comes from increased depreciation which is a non-cash charge. Looking at EBITDA, which ignores the effects of depreciation, shows a 3% bump thanks to tighter cost controls and the removal of BT Sports expenditures.
Seeing underlying revenue and earnings expand is a positive sign and bodes well for the BT dividend forecast. But there remain some concerns surrounding its debt.
With the Bank of England planning further interest rate hikes, the firm’s £19.2bn net debt balance is getting more expensive to service. And with more cash flow gobbled up by interest payments on loan obligations, shareholder dividends may face additional pressure.
What is the BT dividend forecast for 2023 & 2024?
BT’s dividend recent dividend history has been a bit patchy. With the pandemic wreaking havoc on operations, management has had to be fairly conservative with capital allocation. And that ultimately resulted in dividends being completely cut throughout its 2021 fiscal year ending in March.
The firm pays dividends twice a year, an interim dividend in February and a final dividend in September. For its 2022 fiscal year, management paid out a 7.7p cash dividend per share. And when paired with the group’s share price appreciation, the total shareholder return came in at roughly 23%. That’s not bad for a mature telecommunications business, especially since the FTSE 100 only mustered a 15% return over the same period.
The firm’s dividend policy has since resumed, but it’s still down by roughly half of where it used to stand. And with internal investments ramping up to rollout 5G as well as Fibre-to-the-Premises (FTTP) across the United Kingdom, analyst projections don’t seem confident of a recovery in the near term.
Obviously, it’s not what many existing shareholders want to see. But for dividend income investors looking for a growth opportunity, BT Group may still be worth considering given the forecasted 9.2% annualised growth of shareholder payouts.
It’s important to remember that BT’s dividend forecasts for the long term are riddled with uncertainty. After all, five years is plenty of time for something to go wrong or a spanner to be thrown into the works.
However, suppose the company can deliver on analyst expectations. In that case, the stock currently offers an attractive one-year forward yield of 6.1% based on today’s share price. When looking at the 2024 prediction, this jumps to 6.4%, and for the 2025 dividend forecast of 9.51p, the yield reaches as high as 7.3%!
The BT dividend forecast for 2026 and 2027 is 10.85p and 11.94p, respectively. That’s the equivalent of an 8.3% and 9.2% dividend yield. Compared to the FTSE 100’s current average of 3.5%, those are some fairly impressive predicted income returns for patient investors. But of course, there’s never a guarantee these are accurate. And BT’s recent track record doesn’t exactly show a consistent pattern of beating expectations.
Should I buy BT shares for the income?
As previously mentioned, BT operates at the heart of British telecommunication infrastructure. The large-cap stock controls the largest market share across multiple brands, making it an industry leader. And in my experience, these types of businesses often provide the most stability to an investment portfolio.
Having said that, it’s not immune to financial turbulence. We’ve already seen dividends take a hit when external operating conditions get tough. And with continued economic uncertainty today, further disruption to even adjusted earnings may be on the horizon.
However, I think it’s fair to say management seems to be making solid progress in lifting some of the cost pressures as well as optimising the product portfolio to eliminate low-margin legacy solutions. That’s an encouraging sight and does support the general analyst consensus of a steadily rising dividend over the next five years.
The bottom line
Personally, I’m still on the fence about this business. On the one hand, the future of telecommunications is 5G and, eventually, 6G. And BT is perfectly positioned to lead the charge. That’s a nifty first-mover advantage which opens the door to exciting opportunities before its leading rivals.
But on the other hand, it also comes with a substantial pile of debt that is proving worrisome. And if interest rates continue to climb, the amount of residual earnings available to fund dividends could get significantly squeezed. Therefore, while the forecasts look promising, I’m keeping this business on my watchlist for now.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.
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