How much passive income could I make if I buy BT shares today?

BT Group shares offer a very tempting dividend right now, way above the FTSE 100 average. But it’s far from being a no-brainer buy.

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Image source: BT Group plc

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BT Group (LSE: BT.A) shares are on a forecast dividend yield of 7.4% for 2024.

Forecasts show it steady in the next few years, and even rising a bit. And to top the cake off with icing, the dividend cash should be around twice covered by earnings.

On the face of it, it sounds like BT shares could be a great long-term income buy. And I think they might indeed be. I can’t ignore the terrible 10-year share price record, though.

The BT dividend

Before I try to work out what I might earn in income from BT shares, I need to think about the dividend a bit. Some things I like well enough, others not so much.

BT dividends score well on the yield, which is well up in the top half of the FTSE 100. I like to see dividends being covered by earnings, so that’s another plus for BT.

My favourite dividends come from cash cow companies that don’t need to keep investing huge sums to keep going. BT has reasonable, and rising, cash flow. But, boy, does it need to invest big to grow its broadband and other offerings.


Then I also prefer firms that are not under debt pressure. And, well, BT scores a big fat zero on that one.

Net debt of £19.7bn at the last count? For a company with a market cap of just £10bn? Double ouch! I don’t like that one bit.

Then again, BT shareholders can point to the fact that the debt is being serviced just fine. And the amount of cash handed out as dividends wouldn’t make much dent in it anyway.

In fact, funding from debt can be a good way for a firm to make the most of the limited assets it has.

How much?

So what about the big question, how much might I earn from a dividend like BT’s?

Suppose I put a fairly modest £200 per month into BT shares, they keep on paying me that 7.4% each year, and I buy new shares with the cash?

After 20 years, I could end up with £107,000 in the pot. And 7.4% of that would be nearly £8,000 a year in income?

Do that with a few different stocks, paying decent dividends, and my old age might turn out quite comfortable.

Take the risk?

Still, there is that debt. Oh, and BT also has a big pension fund deficit. And it’s having to invest a fortune each year to chase bandwidth in a very competitive market.

And how much capital could I lose if the share price keeps on going down?

The risks are legion, and a big part of me says I should keep a good bargepole’s distance from BT shares.

But something else is nagging me to not dig too deep, and just shut up and take the cash.

I’m not sure I can bring myself to buy shares in a firm with BT’s debt. But I really can see how an investor might want to add some to a diversified dividend portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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