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For years I have been concerned about benefits BT Group (LSE: BT.A) shares. I have always looked at the company’s capital expenditure (capex), and its high debt levels, and wondered how long it could keep the cash payments going.
However, BT continues to manage it. And even if the share price has risen slightly this year, we are still looking at a future dividend yield of 5.6%.
Dividend predictions
If those shares continue at their current levels, we may have a long-term income investment here. And if the retailer’s current predictions are anything to go by, they look good, at least until 2027.
The figures in the table below are all based on BT’s price of 142.5p, at market close on 4 October. They show results for 2024, as well as the next three years of forecasts.
| A year | The dividend | Change | Express | EPS | The cover | P/E |
| 2024 | 8.0p | +3.9 | 5.6% | 8.6p | 1.1x | 16.6 |
| 2025 | 8.2 p | +2.5% | 5.8% | 14.3 p | 1.7x | 10.0 |
| 2026 | 8.3p | +1.2% | 5.8% | 15.3 p | 1.8x | 9.3 |
| 2027 | 8.2 p | -1.2% | 5.8% | 15.3 p | 1.9x | 9.3 |
Why do I think BT’s benefits may be more secure now? That’s partly because the company says it has passed the point of high capex for full-fibre broadband. And that’s because forecasts show earnings strong enough to provide decent profit cover.
Growing debts
That debt isn’t over yet though. In fact, the total debt is slightly higher this year. It increased by 3.1% to £19.5bn, from £18.9bn last year. Anlayst expects it to grow steadily over the next few years as well.
I think it pays to take a moment to let that sink in. BT’s total debt is roughly equal to its total annual income. It is also 2.4 times EBITDA for the full year 2023-24.
I have thought that it would be better to use the remaining money to reduce debt than to pay dividends. But it looks like it won’t have much effect.
Cost of shares
In the last full year, dividends were worth £759m. Debt repayments during that period totaled £1.68bn, with £865m paid in interest.
So the cash dividend was only 3.9% of BT’s total debt. I find it reassuring and scary. It makes me think that it is possible for BT to continue paying dividends, because they are not really that expensive in comparison. But it gives me a sense of how big the debt is.
What’s going on
The board said: “We reaffirm our progressive dividend policy which is to maintain or increase the dividend each year“. But it adds things about “several factors are considered“.
This highlights that there is no guarantee when it comes to benefits. And investors should be aware that money may not appear.
I’m still frustrated that I bought BT shares. I’m really afraid that the debt will come back and bite. It is designed for large fiber output costs. And BT seems to be pinning its hopes on a major takeover. I fear that customers may be slow to switch.
But a reliable long-term yield can be really good.
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