Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be set for long-term growth too.

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The BT Group (LSE: BT.A) share price got a nice boost in May, on the back of a healthy set of full-year results.

The key points were summed up by CEO Allison Kirkby, who told us the firm had passed “peak capex on our full fibre broadband rollout“.

BT hit its £3bn cost savings plan a full year ahead of schedule, too. And she added that “we’ve now reached the inflection point on our long-term strategy“.

What does it mean?

BT still has huge debt, and it still faces a big pension fund deficit. But if we really have just seen a turnaround point, I think we could face a new reality.

And that reality is that my fears for the BT dividend might now be in the past.

I’ve never had too much confidence in it. But if earnings and cash flow do make a turn for the better from now, I reckon the long-term dividend prospects might be solid.

And BT might just be a nice stock for building up a bit of future passive income.

Passive income

The dividend yield is currently forecast at 5.7%. And that’s a nice return, especially if it’s sustainable. Forecasts see it stable for the next few years, though I’d hope for long-term cash rises.

The high yield itself is a direct result of the fallen share price, though, so that might not last.

I see a chance of share price growth now, and a turnaround from the slump of the past decade… It’s hard to remember that, as recently as 2015, BT shares reached 500p.

Anyway, let’s just say a modest 2% per year from price growth. That’s in line with what the Bank of England wants to get inflation back down to.

So that’s a total annual return of 7.7%, a bit ahead of the long-term FTSE 100 average. What might that earn in passive income?

Long-term wealth

Say I can manage to use half my annual ISA allowance, and put away £10k each year. If it all goes into BT, and I reinvest my dividends in more shares, I could build up a pretty penny.

Doing it for 20 years could set me up with a pot of £460,000, more than double the cash I’d put in. Keep it up for 30 years, and I could have over a million pounds, or more than three times my total amount invested.

And that, even at a smaller dividend yield than BT’s current 5.7%, could net me a very nice annual passive income.


Now, I reckon it would be madness to put all my money into one stock. So if I ever bought BT shares, it would be part of a diversified portfolio along with my other dividend stocks.

And BT does still face a very real risk from its debt pile. Oh, and from competition.

Still, it’s good to talk. And talk costs money… money that could contribute to a nice long-term passive income for shareholders.

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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