Is BT Group plc’s dividend still affordable?

Should BT Group plc (LON:BT.A) (BT.A.L) reduce dividend payments in future?

BT Group plc
BT Group plc

With a 6% dividend yield, BT Group plc (LON:BT.A) (BT.A.L) is still one of the highest-yielding shares in the FTSE 100. Its income return is currently around 200 basis points higher than the FTSE 100’s, and this could cause some investors to feel that it has dividend investing potential for the long term.

Given that the company is forecast to post EPS of 25.6p in the current financial year and is set to pay a dividend of 15.4p per share in the same year, I think that its dividend payments are still affordable. That’s in spite of the company having delivered three years of falling EPS, with a further decline in 2018 expected to make it four years in a row of falling profitability.

A further decline in EPS next year is being forecast by the market, and this could make it less likely that BT increases its dividend in 2019 in my view. Furthermore, the company is set to have a new CEO in the New Year, and there could subsequently be changes to its strategy and how it apportions capital.

Therefore, given the challenging financial outlook of the business and the changes that are ongoing, I wouldn’t be surprised if its dividend prospects come under scrutiny. Reducing dividends could allow it to invest more heavily in growth areas and, in the long run, could create a stronger business.

In my opinion, the near-term outlook for the BT share price remains relatively uncertain. As mentioned, it is enduring a period of change and difficult operating conditions. Therefore, following its share price gain of around 50p in recent months, I feel that volatility may remain high.

In the long run, though, I’m still upbeat about its ability to recover and believe that it may be able to outperform a number of its FTSE 100 peers 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