Picture supply: BT Group plc
BT Group (LSE: BT.A) shares are on a forecast dividend yield of seven.4% for 2024.
Forecasts present it regular within the subsequent few years, and even rising a bit. And to prime the cake off with icing, the dividend money ought to be round twice coated by earnings.
On the face of it, it feels like BT shares might be an excellent long-term earnings purchase. And I feel they may certainly be. I can’t ignore the horrible 10-year share value file, although.
The BT dividend
Earlier than I attempt to work out what I’d earn in earnings from BT shares, I want to consider the dividend a bit. Some issues I like effectively sufficient, others not a lot.
BT dividends rating effectively on the yield, which is effectively up within the prime half of the FTSE 100. I prefer to see dividends being coated by earnings, in order that’s one other plus for BT.
My favorite dividends come from money cow corporations that don’t have to hold investing enormous sums to maintain going. BT has affordable, and rising, money circulate. However, boy, does it want to speculate huge to develop its broadband and different choices.
Debt
Then I additionally favor corporations that aren’t beneath debt strain. And, effectively, BT scores an enormous fats zero on that one.
Internet debt of £19.7bn on the final depend? For a corporation with a market cap of simply £10bn? Double ouch! I don’t like that one bit.
Then once more, BT shareholders can level to the truth that the debt is being serviced simply wonderful. And the amount of money handed out as dividends wouldn’t make a lot dent in it anyway.
In actual fact, funding from debt generally is a great way for a agency to profit from the restricted property it has.
How a lot?
So what concerning the huge query, how a lot would possibly I earn from a dividend like BT’s?
Suppose I put a reasonably modest £200 per thirty days into BT shares, they carry on paying me that 7.4% annually, and I purchase new shares with the money?
After 20 years, I might find yourself with £107,000 within the pot. And seven.4% of that might be almost £8,000 a yr in earnings?
Try this with a couple of totally different shares, paying respectable dividends, and my previous age would possibly prove fairly snug.
Take the chance?
Nonetheless, there may be that debt. Oh, and BT additionally has an enormous pension fund deficit. And it’s having to speculate a fortune annually to chase bandwidth in a really aggressive market.
And the way a lot capital might I lose if the share value retains on happening?
The dangers are legion, and an enormous a part of me says I ought to hold a superb bargepole’s distance from BT shares.
However one thing else is nagging me to not dig too deep, and simply shut up and take the money.
I’m unsure I can convey myself to purchase shares in a agency with BT’s debt. However I actually can see how an investor would possibly need to add some to a diversified dividend portfolio.
