Is BT Group plc a ‘risky’ dividend share?

Could BT Group plc (LON:BT.A) (BT.A.L) offer income investing appeal?

BT Group plc
BT Group plc

The BT Group plc (LON:BT.A) (BT.A.L) share price currently has a dividend yield of around 6%. That’s approximately 200 basis points greater than the FTSE 100’s dividend yield, and may suggest that the stock has income investing potential at the moment.

In my view, though, the dividend prospects of the telecoms company may be relatively uncertain. A new CEO is due to commence work in the New Year, and I would not be surprised if some strategy changes take place. From my experience, a new CEO often finds areas that they wish to update or refresh in order to try and deliver improving financial performance in the long run.

Alongside this, BT is forecast to post a fall in EPS in the next two financial years. This could mean that the chances of improving dividend growth may be relatively slim, since the business may seek to retain and invest excess capital over the medium term in order to improve its financial outlook.

As a result, I think the stock may be relatively risky from a dividend investing perspective. Although it has a high yield which could still be affordable given its EPS forecasts over the next few years, I believe there may be more resilient and reliable income stocks in the FTSE 100 which have higher yields than the wider index.

That said, I do think that BT could offer turnaround potential over the long term. Its new strategy appears to be sound according to my research, and this could lead to improving financial performance. Its recent update suggested that its strategy is being successfully implemented, and this could mean that the lack of profit growth of recent years comes to an end in the long run.

Therefore, while potentially risky and volatile, I’m cautiously optimistic about the stock’s investment prospects for the long term. From an income investing perspective, I feel there may be more reliable stocks in the FTSE 100, but the telecoms company could post improving total returns in future years.

About Robert Stephens 5151 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page