Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, BT Group plc (LON:BT.A) has paid dividends to shareholders, and these days it yields 6.1%. Should it have a place in your portfolio? Let’s take a look at BT Group in more detail.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
Does BT Group pass our checks?
The current trailing twelve-month payout ratio for the stock is 66%, which means that the dividend is covered by earnings. However, going forward, analysts expect BT.A’s payout to fall to 57% of its earnings, which leads to a dividend yield of around 6.0%. In addition to this, EPS is also forecasted to fall to £0.22 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from BT Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, BT Group produces a yield of 6.1%, which is high for Telecom stocks.
With these dividend metrics in mind, I definitely rank BT Group as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three important aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BT.A’s future growth? Take a look at our free research report of analyst consensus for BT.A’s outlook.
- Valuation: What is BT.A worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BT.A is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.