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BT Group plc isn’t the 6% yielder I’d buy today

BT Group (LSE: BT-A) has had its fair share of problems in recent times yet, despite this, the FTSE 100 share retains its allure with many a dividend-chaser.

Although BT is expected to report a 3% earnings slip for the year ending March 2018 — the second successive annual drop if realised — the telecoms titan is still anticipated by City analysts to hike the dividend to 15.6p per share from 15.4p the previous year.

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What’s more, supported by predictions of a 3% earnings rebound in fiscal 2019, another dividend hike – to 15.9p – is forecasted.

As a result, investors can bask in monster yields of 6.6% for this year and 6.7% for the following period.

Plenty of problems

As I say, BT is not without its troubles, but many investors would say that an ultra-cheap prospective P/E ratio of 8.7 times more than factors these in. I am not so sure, however, and reckon the business is in severe danger of extending its share price downturn (its market value has slipped by almost a third over the past year alone).

As myself and my Foolish colleagues have been keen to point out, whilst the company’s Openreach division was spared from having to be fully spun out by the regulator Ofcom, it still faces a hulking capital expenditure bill as it is forced to extend and build Britain’s fibre network.

On top of this, there is the little matter of BT having to overcome the little problem of the black hole in its pension scheme, as well as the pressure created by slumping revenues (these fell 1.5% on an underlying basis during October-December). All of these factors could put vast pressure on dividend growth going forwards.

Tap into the grid

Rather than run the risk of sustained earnings pressure over at BT, I’d be much happier to splash the cash on National Grid (LSE: NG) today.

Obviously the electricity network protector doesn’t have what it takes to generate scintillating profits growth. But I don’t care. Its highly-defensive operations in a market over which it exercises complete and undisturbed control provide exceptional earnings visibility that underpins predictions of further dividend growth over the next few years.

For the year to March 2018, for example, a predicted 3% bottom-line improvement is expected to shove the dividend to 45.6p per share from 44.27p last year. And additional payout expansion, to 46.9p, is forecasted for fiscal 2019, supported by an anticipated 2% earnings rise.

Consequently, share pickers can lap up monster yields of 6.1% and 6.3% for this year and next.

National Grid has seen its share price erode by a quarter over the past 12 months as investors have fretted over the possibility of regulators getting tough with the country’s electricity operators and suppliers.

This remains a big problem for major suppliers like Centrica who have put themselves in further jeopardy of draconian action after the price hikes of the past year or so. But National Grid stands on much sounder ground and is, in my opinion, unlikely to see Ofgem undermine its position as sole operator of the electricity grid.

Aforementioned price weakness leaves National Grid trading on a forward P/E ratio of just 12.7 times. This is too cheap in my opinion given the Footsie giant’s exceptional defensive qualities.

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Royston Wild 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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