How many BT shares would I need to earn a £10,000 second income?

A 5.76% dividend yield is attractive, and if BT manages to bring down its costs, it might be a great stock for investors looking for a second income.

| More on:

Image source: BT Group plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Owning dividend shares can be a great way of earning a second income. And the FTSE 100 has some terrific choices for investors to consider.

Shares in BT Group (LSE:BT.A) are up 25% this week as the company announced significant restructuring plans. But the stock could still be worth considering with a 5.76% dividend yield.

A £10,000 second income

Right now, BT distributes 8p per share in dividends. That means earning a £10,000 second income would involve buying 125,000 shares. 

At today’s prices, that would require an outlay of around £168,000. That’s a lot, but there are a few reasons for investors looking at the stock to be optimistic.

One is that this can be invested over time – £168,000 amounts to £466 per month for 30 years. Another is that reinvesting the dividends received along the way can contribute to this.

The biggest reason, though, is that BT can increase its dividend over time. And if the new CEO’s plan comes off, the increase could be dramatic. 

Cost reductions

Allison Kirkby has been in charge of BT since February and the stock is up 30% since then. And the new CEO thinks the outlook for the company is bright.

BT operates in a capital-intensive industry. The cost of building out the UK’s fibre optic network through its Openreach subsidiary has been weighing on its profits.

However, it seems that the peak of the investment cycle has passed. The company has now entered a phase of cutting costs, with £3bn in reductions announced earlier this week.

That’s positive for BT’s earnings – and more importantly, its cash flow. Over the next five years, free cash flows are set to double, which could lead to a significantly higher dividend.


Not everyone is buying it, though. An inflationary environment is tough for businesses with high capital intensity and BT’s share price is down 34% over the last five years.

Arguably, though, this isn’t the biggest problem with the company. Despite its significant cash requirements, BT is facing significant competition. 

The number of customers subscribed to its Openreach broadband plans has been coming down. And the business is also losing market share in broadband lines.

To offset this, BT will need to raise prices to customers. But whether or not it can do this without accelerating the rate of customers migrating away is another question.

Time to buy?

If BT can double its free cash flows in the next five years, the stock looks like a bargain. In any event, the 5.76% dividend yield is attractive even with interest rates at 5.25%.

Obviously, the stock was more attractive when it was 20% cheaper a week ago. But with cost reductions starting to come through, this could be worth keeping an eye on.

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.

Stephen Wright 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.

More on Investing Articles

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »