Here’s how BT shares measure on my 5-point passive income checklist

Are BT Group (LSE: BT.A) shares a very good purchase for traders wanting to construct a retirement revenue pot? That’s a query I’ve tried to grapple with quite a bit through the years, and I maintain arising with conflicting solutions. Let’s see how issues add up after I apply my 5 key standards.

Dividend

A good dividend is a should for me. And BT’s forecast 4.7% dividend yield seems to be ok. Different issues equal, I’d want a much bigger yield… however that’s the place my different checks are available in.

BT just lately introduced a 2% dividend rise to eight.16p, and stated it intends “to take care of or develop the dividend every year” relying on different components. If BT reaches £3bn of annual normalised free money circulate by the top of the last decade as deliberate, I feel the dividends ought to be protected. I rating a go on dividends.

Cowl

BT posted 18.8p in adjusted earnings per share (EPS). That covers the dividend 2.3 occasions, which I see as simply satisfactory. There’s a large discrepancy between that adjusted determine and a primary EPS of 10.8p although. That may occur and isn’t essentially an issue. However we noticed the identical final 12 months with primary EPS of 8.7p turning into an adjusted 18.5p.

It’s not a purpose to reject BT. However I’d regulate it. It doesn’t cease me giving BT a go on dividend cowl.

Historical past

A historical past of progressive dividends helps enhance my confidence over future dividends. Sadly, that’s the place BT stumbles a bit. BT paid a 15.4p dividend for 2019. It was slashed when the pandemic hit, however then got here again at a lot decrease ranges. Even the 2025 dividend was solely a bit greater than half of 2019’s.

Cowl was skinny again then, and I reckon a minimize was wanted. However I feel that ought to have been handled quite a bit sooner, and I’ve to mark this one as a fail.

Forecasts

Forecasts aren’t high-confidence issues. However at the least the analysts anticipate dividend rises for the following couple of years. And that matches in with what BT was saying in its FY outcomes announcement.

Forecast earnings present good cowl too, in order that’s one other go for a rating of three out of 4 up to now.

Debt

Lastly, one thing that may kill a dividend within the occasion of a monetary squeeze. BT’s debt is sort of excessive sufficient to carry precise tears to my eyes. At 31 March, internet debt reached £19.8bn. That’s one other enhance, although the corporate put the rise right down to £0.8bn in pension fund contributions. Oh sure, BT has an enormous pension fund deficit too. No less than that’s falling and anticipated to be cleared by 2030.

However that internet debt determine is greater than BT’s whole market-cap. It’s a transparent fail.

The rating

BT scores three out of 5 on my guidelines, with debt being my largest concern. I nonetheless assume traders who’re much less apprehensive about debt and might simply maintain taking the dividends ought to contemplate BT for long-term revenue, and I think they’d do properly. However I can’t, so I’m out.