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With the BT Group (LSE: BT.A) share worth up 58% within the house of the final 12 months, the lengthy slide since late 2015 would possibly actually have been reversed.
And thru all these years BT has maintained its concentrate on dividends. Covid introduced a minimize, however the annual funds are again on observe.
With the shares on a rebound, we’re taking a look at a forecast dividend yield of 4.9% now. The 2024 dividend was raised 3.9% after normalised free money stream got here in forward of steerage.
Shiny outlook
In January’s Q3 buying and selling replace, CEO Allison Kirkby advised us: “Advantages from our value transformation greater than offset decrease income exterior the UK and weak handset gross sales.” She added: “We proceed to make progress in the direction of turning into totally centered on the UK, with the sale of our information centre enterprise in Eire.”
“BT’s continued supply means we stay on observe to ship our monetary outlook for this yr and our money stream inflection to c.£2bn in 2027 and c.£3bn by the top of the last decade,” concluded the boss. That appears like loads of money to maintain the dividend rising.
Full-year outcomes for 2024-25 are due on 22 Might. And in the event that they present extra of the identical progress, this is likely to be the FTSE 100 funding to beat this yr. Earnings progress is predicted for the following few years. And I see a superb probability of the share worth success persevering with into subsequent yr and past.
The analyst consensus echoes that optimism, with a median BT share worth goal of 195p. That’s a 17% achieve on the value as I write on 25 April. It could increase the forecast price-to-earnings (P/E) ratio to 14. With additional progress in earnings and dividends on the playing cards for the following few years, that may appears honest worth.
An excessive amount of too quickly?
But the issue I see is that the inventory valuation does appear to soak up all of the optimism, however perhaps not the danger. Sentiment has reversed for the higher since Allison Kirkby took cost in February 2024, because it usually does with a brand new boss. And I do assume she brings a clearer focus to BT that the corporate had been missing.
However she’s solely been within the job for a really brief time. And I’m reminded of how lengthy it took Amanda Blanc to actually flip issues spherical at Aviva.
Probably the most bearish of analysts count on a worth fall of greater than 30%, to 112p. I believe they could have their eyes on BT’s rising web debt pile. It was up once more at H1 time, to £20.3bn. And the corporate continues to be paying down its pension fund deficit, with one other £0.8bn within the interval.
I count on BT will retain excessive debt for a really very long time. However I simply wish to see margins bettering and a few effort being made to scale back it. Till then, I’ll preserve away. However seeing how debt hasn’t impacted the dividend outlook, I can perceive why some traders is likely to be pleased to miss it and think about shopping for.
