The BT Group plc (LON:BT.A) (BT.A.L) share price currently yields 6.1%. That’s around 170 basis points higher than the FTSE 100’s yield. It makes it one of the highest-yielding stocks in the index, with its income return being around 2.5x higher than inflation.
In spite of this, I think that the company’s income potential could be limited by its financial outlook. It is due to post falling EPS in the next two financial years. This indicates to me that it may not prioritise raising its dividend until it is able to generate improving financial performance.
In fact, it could be argued that the company should reduce its dividend payments at the moment. It is undergoing a period of intense change and investment, with the cash used to pay dividends potentially having better uses in improving the financial strength of the business in the long run. I, personally, can see the logic behind this argument, and feel that it could lead to improving total returns in the long run, although investors would see reduced income returns in the near term.
With a change in CEO expected within the next couple of months, I believe there could be continued change at BT. It wouldn’t surprise me if there is a further shift in its focus after it announced major headcount reductions as part of a cost-saving strategy earlier this year. This could create additional instability in the short run in my view.
Long term, I’m upbeat about the company’s total return potential. I feel that it has the potential to generate improving EPS growth as a result of a focus on efficiency and the customer experience.
At the same time, though, I view BT as a risky share which may be unable to deliver dividend returns which are as impressive as some of its index peers over the next few years. For me, it is a recovery share rather than an income stock at the moment.