With BT Group (LSE:BT.A) shares up by over 40% in the last 12 months, the popularity of this telecommunications giant is on the rise.
Being the operator of Britain’s communication infrastructure, the business has long been seen as a good defensive pick for conservative investors. However, the firm’s debt burden eventually got out of hand due to fiscal mismanagement – a problem that was only exacerbated when interest rates started to rise.
However, under new leadership, the company seems to be getting back on track. And as a result, not only is its financial health improving, but so are dividends, which have been on an upward trajectory since 2023. With analysts projecting a continued ramp-up of earnings, is this secretly a top-notch income stock in 2025? And if so, how much income could investors start earning today or in the future?
Calculating income
Right now, BT shares offer a tasty-looking 4.6% yield with the dividend per share at 8.16p. So anyone with a casual £18,000 to spare can buy 10,000 shares of this enterprise and immediately start earning a second income of £816. But if new CEO Allison Kirkby continues to hit recovery milestones, this payout could increase in the coming years. And right now, analyst forecasts predict that dividends could reach 9.03p by this time in 2029 – four years from now.
On a forward basis, that puts the yield at 5%, which isn’t a crazy amount of growth. But that’s still enough to push the passive income stream just over £900 a year or even higher if investors decide to reinvest any earnings along the way.
Needless to say, compared to some other income opportunities in the FTSE 100, this seems a little underwhelming. However, BT might deliver a few surprises that could bolster its performance. Cost-saving initiatives have already helped pave the way to superior free cash flow generation. And with both debt and its pension deficit starting to shrink, superior financials might enable dividends to grow faster than expected – not to mention the extra capital gains that would likely follow in this scenario.
What could go wrong?
Surprises aren’t always a good thing. And while growth projections are currently modest, a new spanner getting thrown into the works could make even these overly optimistic.
Recently, the company fended off a £1.3bn class-action lawsuit alleging that the company was overcharging on landline services. While this legal battle was won, other allegations may emerge in the future, given the strict regulatory environment in which BT operates.
Internally, the company’s also navigating execution risk in rolling out its fibre-to-the-premises across the country. So far, progress on this project is coming along smoothly, with demand from customers rising. But there are still plenty of households, particularly in rural locations, that have yet to be connected. And any cost overruns or delays could constrain financial resources, putting pressure on margins.
The bottom line
All things considered, BT Group seems to be in far better shape under Kirkby’s leadership. But there’s still plenty of damage to fix from earlier management teams that are likely impeding growth. Personally, while there may be an interesting recovery opportunity in BT shares, in terms of dividends, I think there are better alternatives to consider.
