Here’s my 2024/25 dividend forecast for BT shares

Jon Smith takes a look at the rising dividend forecast for BT shares and explains why this could be a strong income stock to consider.

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Image source: BT Group plc

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Over the past year, the dividend yield for BT Group (LSE:BT.A) shares has been consistently above the FTSE 100 average. Over the past year, the BT share price is up by 15%. So to have a dividend yield of 5.73% while also seeing a rally in the stock is very impressive. Here’s what could be coming regarding the dividend forecast for the immediate future.

The income basics

BT usually pays out two dividends a year. The main one gets announced in May following the release of the full-year results. A second interim dividend usually gets revealed in Q4. Over the past year, the total of the two paid amounts to 8p. This is made up of the May dividend of 5.69p and the interim dividend from late last year of 2.31p.

Interestingly, before the pandemic hit, the business had several years of paying out a main dividend above 10p with the release of its annual results. This changed in 2020, and the firm actually stopped paying out any income until announcing the resumption in late 2021.

Income investors might be concerned about the pause. It’s true that this is a risk going forward as it could happen again. However, the pandemic was a black swan event that I don’t think will be repeated any time soon. Further, the fact that it cut the dividend to protect cash flow is a sensible action so that it could survive and eventually pay out income again.

The forecast

BT Group has been heavily investing in its fibre broadband rollout. This has cost billions of pounds, but ultimately is an expense that should be worthwhile further down the line. Importantly, in the annual results in May, the CEO commented that the group is now past the point of the highest costs.

As a result, she was able to provide new guidance for “significantly increased” short-term cash flow and se out a path “to more than double our normalised free cash flow over the next five years”.

This bodes very well for dividends in coming years. The forecast for the 2024 total is 5.69p plus 2.36p (a total of 8.05p). For 2025, this rises to 5.8p and 2.43p (a total of 8.23p).

If I assume that the share price stays the same for the next year, this could increase the dividend yield to 5.9%.

Final thoughts

One risk to the yield going forward is share price movements. Investors are clearly optimistic about the transformation process and they think the business is now over the worst of its heavy cash outlay. So if the share price increases, this would act to lower the dividend yield.

Another concern is future revenue for the business. Having the infrastructure rolled out is one thing, but the next step is to monetise that in an efficient way. Only time will tell if BT does this.

Despite these points, I think BT is a solid company that should grow its dividends in coming years. As a result, it’s a stock on my watchlist that I’m thinking about buying.

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.

Jon Smith 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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