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What Are BT Group plc’s Dividend Prospects Like Beyond 2014?

Today I am looking at telecoms leviathan BT Group‘s (LSE: BT-A) (NYSE: BT.US) dividend outlook past 2014.

Dial in for decent dividend prospects

Robust double-digit earnings growth during the past four years has enabled BT to ratchet up the dividend during this time — indeed, the telecoms play has increased payouts at a compound annual growth rate of 8.3% since 2010.

City analysts expect BT to post a modest 4% earnings dip for the year concluding March 2014, mostly due to the cost of acquiring UEFA Champions League football from 2015, before a solid recovery sees earnings rise 12% and 9% in 2015 and 2016 respectively.

And forecasters anticipate this bubbly long-term earnings outlook to underpin massive dividend increases. BT is expected to lift the 2014 dividend 14.7% year-on-year to 10.9p per share, with an additional 13.8% increase pencilled in for 2015, to 12.4p. In 2016 the firm is predicted to fork out a 14.4p dividend, up 16.1%.

Although these projections currently leave BT’s dividend yield trailing those of its rivals — the firm’s anticipated 2014 payout creates a readout of 2.9%, below the forward average of 3.1% for the FTSE 100 — stunning growth in the proposed payouts thereafter sees the yield shoot to 3.3% in 2015 and 3.8% in 2016.

Despite this year’s expected earnings wobble, investors can take heart from solid dividend coverage of 2.4 times prospective earnings, comfortably exceeding the widely regarded security benchmark of 2 times. And this is expected to remain at a robust 2.3 times and 2.2 times in 2015 and 2016 respectively.

As well, the firm’s ability to throw up plenty of cash should also bolster confidence in BT’s ability to fulfill expected payouts over the next three years. The company generated free cash flow of £3.68bn in the 12 months to March 2013, up markedly from £3.05bn in the previous year.

BT continues to shell out vast amounts of capital in order to cement its position as Britain’s foremost triple-services entertainment provider. Not only is the company rapidly building its fibre optic broadband network — BT now connects more than 17m premises up and down the country — but its bid to take on British Sky Broadcasting Group in the TV market is seeing it shell out vast sums to furnish its BT Sport with top-level English and European football.

However, I believe that these vast capex levels are set to deliver stunning growth over the long haul. Its aggressive moves into the TV sphere is benefiting the business as a whole — BT secured more than 90% of new broadband additions during July-September — with the decision to offer its sport packages free to all its internet customers showcasing the guile needed to take on Rupert Murdoch’s media empire. In my opinion BT is shaping up to punch strong earnings, and thus dividend expansion, in coming years.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in BSkyB.