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BT Group plc’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of BT Group (LSE: BT-A) (NYSE: BT.US).

Dividends past

The table below shows BT’s five-year earnings and dividend record.

  2008/9 2009/10 2010/11 2011/12 2012/13
Statutory earnings per share (EPS) -2.5p 13.3p 19.4p 25.8p 26.7p
Adjusted EPS 14.1p 17.3p 21.0p 23.7p 26.6p
Dividend per share 6.5p 6.9p 7.4p 8.3p 9.5p
Dividend growth -58.9% +6.2% +7.2% +12.2% +14.5%

As you can see, after slashing the dividend by close to 60% during 2008/9, BT delivered good dividend growth, and the rate of growth accelerated year on year. The four-year average annual increase comes out at an impressive 10% — far ahead of inflation.

There has been little difference between statutory and ‘adjusted’ (underlying) EPS since the dividend-cut year when statutory EPS was negative due to hefty contract and financial review charges.

Over the five-year period, total dividends of 38.6p were covered a healthy 2.1 times by statutory EPS of 82.7p, and an even healthier 2.7 times by adjusted EPS of 102.7p. For the latest year (2012/13) cover was 2.8 on both EPS measures.

The dividend cut — not the first in the company’s history — is a big black mark, and the strong dividend performance since would be more impressive if it didn’t come from a drastically reduced payout level.

Dividends present

For the current year (ending March 2014), BT has already declared an interim dividend of 3.4p a share, which any investor buying before the ex-dividend date of 23 December will collect.

Analysts are expecting a final dividend of 7.45p when the company announces its annual results — giving a 2013/14 full-year payout of 10.85p, up 14.2% on last year and at the high end of the company’s guidance range of 10%-15%. Meanwhile, underlying EPS is expected to be down 4%, reducing dividend cover to a still decent 2.4.

At a share price of 368p, BT’s expected current-year dividend represents a yield of 2.9%.

Dividends yet to come

BT has also guided that the 2014/15 dividend will increase in the 10%-15% range. Again, the analyst consensus is for a number at the top end: 12.4p, representing a 14.3% rise. The analysts see EPS returning to growth, with a double-digit increase covering the dividend 2.3 times.

BT has looked a rather stronger company in recent years, but the historical dividend record isn’t good. I find it difficult to be confident about reliable income growth (beyond the immediate future) when you have a company with a cutter’s past operating in a fast-changing industry.

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> G A Chester does not own any shares mentioned in this article.