Why BT is a FTSE 100 dividend share I’d buy today

BT Group plc (LON: BT.A) could offer sound total returns when compared to the FTSE 100.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The income investing prospects of BT (LSE: BT.A) could prove to be somewhat risky. The telecoms company is undergoing a period of significant change, with a new CEO due to commence work at the business in less than a month. And with cost-cutting ongoing and its financial outlook being downbeat, it may appear as though the stock lacks dividend investing potential.

However, there could be a value investing opportunity on offer. The company has a relatively low valuation, as well as a high yield. This suggests that it could be worth buying in my opinion alongside another income stock which released positive results on Wednesday.

Improving outlook

The stock in question is hard landscaping manufacturer Marshalls (LSE: MSLH). It announced that recent trading has been strong, with revenue for the first 11 months of the year rising by 14% to £465m. Its self-help programme is achieving its goal in supporting organic growth, while the underlying indicators in a range of markets remain positive.

Alongside its trading update, the company also released news of an acquisition. It has purchased Edenhall Holdings for an initial cash consideration of £11.8m and deferred consideration of up to £5.4m. Edenhall is an independent brick manufacturer and a supplier of concrete facing bricks. The deal is in line with the company’s strategy of expanding into adjacent building products related to New Build Housing.

Looking ahead, Marshalls is expected to report a rise in earnings of 15% in the current year, which puts its shares on a price-to-earnings growth (PEG) ratio of 1.3. Its growth rate could prompt a rise in dividends – especially since they are covered 1.7 times by profit. As such, its 3.2% dividend yield could become increasingly appealing.

Income potential

As mentioned, BT could offer a relatively attractive income investing outlook. The stock has a dividend yield of 6.1% at the present time, which is around 170 basis points higher than the FTSE 100’s income return. This indicates that investors may be expecting a challenging period for the business and its dividend, with 2018 and 2019 representing periods of significant change.

Strategy changes could take time to have their desired impact, while a new CEO may have more scope to reduce dividend growth in order to facilitate further expansion. A dividend cut could even be on the cards, although a payout ratio of 60% sounds both affordable and relatively prudent given the company’s size, scale and diversity.

As with many FTSE 100 shares, the prospects for BT over the coming months may be somewhat challenging and difficult to accurately predict. However, for investors who are searching for a high yield from a business that could deliver a successful turnaround, it could be worthy of a closer look.

Certainly, it may be riskier than some of its index peers and dividend growth is not guaranteed. But given its margin of safety and the progress being made on the implementation of its new strategy, the stock could have an increasingly favourable risk/reward ratio.

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.

Peter Stephens 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »