The BT Group (LSE:BT.A) share price has had an erratic couple of years. And over five years, it’s fallen by 50%.
When I look back at the soaring heights of the dot com bubble, a tear almost comes to my eye. So far in the 21st century, BT shares are down 88%. Ouch.
Dividends
But, right now, we’re looking at a nice fat dividend yield of 6.2%.
Broker forecasts suggest the dividend will rise in the coming years too. And the company itself seems to prioritise the payouts. They came back quickly enough after the pandemic, though at a lower level than before.
With the shares down so much, that yield looks very good to me. With BT on a low valuation today, I have to ask why investors are shunning the stock. Don’t they want a share of that cash?
What is it?
Let me ask what might sound like a silly question. What, exactly, is BT? It’s a telecoms company, right?
Or is it a debt managemebt firm? Or could it be a pension fund manager?
The reason I ask is that BT had £19.7bn of net debt on its books at the halfway stage in September. That’s way more than the firm’s total market cap of £12.5bn.
The debt rose “mainly due to pension scheme contributions“, the company said. And the fund deficit has been a millstone round BT’s neck for years.
It still generates cash
It’s the debt that’s kept me away from BT shares. But, as a dividend investor, should it really matter to me?
Those forecasts show stable earnings in the next few years, at around twice the expected dividend. They reckon cash flow should rise a little too.
And if BT can do all this while managing its debts without any real sign of trouble, why not just buy the shares and take the cash each year?
I don’t mean this as just idle speculation. No, I really do think this has been the thinking of a lot of BT’s shareholders over the years.
A good 2024?
But Covid and the stock market crash knocked the wind out of many a supposedly safe income investment.
We saw, in particular, how close even Rolls-Royce Holdings, one of the UK’s long-term flagship companies, came to going bust.
Debt can hurt. A lot. Especially in hard times.
And we’re in hard times now, for sure.
Light at the end
But here’s the thing. Can the UK’s outlook really get any more glum? On the contrary, inflation is already coming down. Interest rates will follow some day, and I believe it could be sooner in 2024 than a lot of us think.
So, here’s my guess.
It’s not a prediction. And nobody should go and buy BT shares based on my idle speculation. Not even me.
But I think improving sentiment could well turn investors back to these tasty dividends in 2024, when we’re more confident of their sustainability. And the BT share price could be in for a good year.
