Today I am looking at whether BT Group (LSE: BT-A) (NYSE: BT.US) is an appealing pick for those seeking chunky dividend income.
Further dividend expansion on the cards
An environment of regular earnings growth during the past five years has enabled BT Group to consistently lift the full-year dividend. The business has raised the payout at a compound annual growth rate of 12.1% since 2010, and although earnings growth has slowed in recent years, dividend expansion has remained consistent and BT lifted the total payout 15% last year to 10.9p per share.
And forecasters expect further earnings expansion — City brokers have pencilled in growth of 2% and 9% for the years concluding
March 2015 and 2016 correspondingly — to keep BT’s progressive dividend policy on track.
The telecoms giant is anticipated to shell out a total of 12.5p per share this year, up 15% from fiscal 2014, with an additional 17% rise predicted for next year to 14.6p per share.
These growth projections are undoubtedly impressive, and push the current year’s yield of 3.3% –which is just above the FTSE 100 forward average of 3.2% — to 3.9% in 2015. And expectations of further meaty dividend hikes thereafter blast yields even higher.
Terrific cash pile bolsters dividend potential
And BT can be considered a safe bet to deliver on these forecasts, in my opinion. The company sports dividend coverage of 2.3 times for 2015 and 2.2 times for 2016 , comfortably above the widely-regarded security benchmark of 2 times.
Investors can also take confidence from the firm’s ability to chuck up vast amounts of cash. BT saw free cash flow rise 7% last year to £2.45bn, beating an expected £2.3bn, and is aiming to ratchet this up to £2.6bn in the current 12-month period, as heavy cost restructuring goes through the gears.
BT is having to use vast sums of its capital pile in order to continue building its broadband network in the UK — more than two-thirds of homes and businesses are now wired up to the company’s fibre — while it is also set to shell out more gargantuan sums to bolster its BT Sport packages and take on the might of Sky.
Still, I believe that the firm’s ambitious capex drive should continue to drive earnings steadily skywards in coming years, a promising situation for reliable yet spectacular dividend growth.
