Weeks of will it, won’t it stock market chatter about BT (BT.A) and its potential to cut its dividend might seem to have been put to bed once and for all. Today the £21.5bn telecoms colossus reported annual results to 31 March that kept the 15.4p per share full year payout in place.
Talk had been swirling that a cut to the payout might be on the cards ever since the half year dividend was reduced by 5%. The chatter was that Philip Jansen, who only started in the chief executive top job on 1 February this year, might want a fresh slate on which to draw up his own plans to get the business back on a growth path.
BT STICKS ON PAYOUT
So confirmation that not only has last year’s full year dividend been maintained but BT expects also to do the same again this year was welcome news for shareholders.
The problem is this increasingly looks like a case of kicking the can down the road on the long-run dividend sustainability debate.
This is reflected both in an anticipated income yield of 7% this year and the 215p share price (down 1.5% today), which has been in consistent decline for nearly five years. As the chart shows, BT’s shares have fallen steeply in the past. It has also cut the dividend twice before, in 2002 and 2010.
Last year revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) both declined, down 1% and 2% respectively, albeit in line with expectations. That’s EBITDA after a litany of adjustments that BT thinks are fair.
Normalised free cash flow also fell, and much more sharply, down 18% to £2.44bn while capital expenditure rose 13% (to £3.96bn) largely due to much needed infrastructure investment.
FINANCIAL DEMANDS
There are also plans this year to accelerate investment in its national telecoms backbone network Openreach to get faster fibre to the doors of more UK homes and businesses. This is in part because regulator Ofcom demands as much, but also because BT is facing intensifying competition from well-funded emerging fibre network operators.
The free cash flow BT anticipates this year of between £1.9bn to £2.1bn means a £1.5bn payout for the current year is covered but with a huge pension deficit to fund, increasing investment and declining revenues, the margin for error is closing in.
