Shares in BT Group (LON: BT.A) (BT.A.L) continue to fall. Trading at over 500p early last year, the shares now change hands for 244p.
The share price decline has pushed BT’s dividend yield up considerably. Last year, the telecommunications group paid its shareholders 15.4p per share. At the current share price, that equates to a high dividend yield of 6.3%.
So what are analysts’ dividend forecasts for the 2018 year?
BT dividend forecast 2018
At present, City analysts forecast a FY2018 dividend payout of 15.8p per share from BT Group. That’s growth of 2.6% on last year, and equates to a dividend yield of 6.5% at the current share price. Can the company deliver on that payout?
Dividend cover is forecast to be around 1.8 times, a level which would normally suggest the company can comfortably cover its payout. However, the issue with BT is the group’s colossal pension deficit. I wrote about it in this article here. According to The Financial Times, the current pension deficit is £7.7bn.
Ratings agency Moody’s believes that BT may need to contribute £2bn towards the pension within the next two years, in order to ease concerns of the pension trustees. To put that in perspective, last year’s dividend payments cost the company £1.4bn. So even if BT delivers on this year’s dividend, the payout the year after could be at risk.
Given the size of BT’s pension deficit, I’m not confident in the company’s future dividend growth prospects.
Warnings signs of a cut are there, in my view. For a start, in its most recent half-year results earlier this month, BT held its interim dividend flat at 4.85p per share. Last year, the interim dividend was raised by 10%.
Furthermore, with the share price declining to a level at which the forecast yield is now a high 6.5%, it suggests to me that the market is not convinced about BT’s dividend prospects. When it comes to dividends, if it looks too good to be true, caution is advised.
Disclosure: Edward Sheldon, CFA has no position in BT Group.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.