Picture supply: BT Group plc
BT Group (LSE: BT.A) shares are on a forecast dividend yield of seven.4% for 2024.
Forecasts present it regular within the subsequent few years, and even rising a bit. And to high the cake off with icing, the dividend money must be round twice coated by earnings.
On the face of it, it appears like BT shares might be an excellent long-term revenue purchase. And I feel they may certainly be. I can’t ignore the horrible 10-year share worth document, although.
The BT dividend
Earlier than I attempt to work out what I would earn in revenue from BT shares, I want to consider the dividend a bit. Some issues I like properly sufficient, others not a lot.
BT dividends rating properly on the yield, which is properly up within the high half of the FTSE 100. I wish to see dividends being coated by earnings, in order that’s one other plus for BT.
My favorite dividends come from money cow firms that don’t must hold investing big sums to maintain going. BT has cheap, and rising, money circulation. However, boy, does it want to speculate huge to develop its broadband and different choices.
Debt
Then I additionally choose corporations that aren’t beneath debt stress. And, properly, BT scores an enormous fats zero on that one.
Internet debt of £19.7bn on the final depend? For a corporation with a market cap of simply £10bn? Double ouch! I don’t like that one bit.
Then once more, BT shareholders can level to the truth that the debt is being serviced simply tremendous. And the amount of money handed out as dividends wouldn’t make a lot dent in it anyway.
Actually, funding from debt is usually a great way for a agency to take advantage of the restricted belongings it has.
How a lot?
So what in regards to the huge query, how a lot would possibly I earn from a dividend like BT’s?
Suppose I put a reasonably modest £200 per thirty days into BT shares, they carry on paying me that 7.4% every year, and I purchase new shares with the money?
After 20 years, I may find yourself with £107,000 within the pot. And seven.4% of that will be practically £8,000 a 12 months in revenue?
Do this with a number of completely different shares, paying respectable dividends, and my previous age would possibly end up fairly snug.
Take the danger?
Nonetheless, there’s that debt. Oh, and BT additionally has an enormous pension fund deficit. And it’s having to speculate a fortune every year to chase bandwidth in a really aggressive market.
And the way a lot capital may I lose if the share worth retains on taking place?
The dangers are legion, and an enormous a part of me says I ought to hold an excellent bargepole’s distance from BT shares.
However one thing else is nagging me to not dig too deep, and simply shut up and take the money.
I’m undecided I can convey myself to purchase shares in a agency with BT’s debt. However I actually can see how an investor would possibly wish to add some to a diversified dividend portfolio.
