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Are BT Group (LSE: BT.A) shares a good buy for investors wanting to build a retirement income pot? That’s a question I’ve tried to grapple with a lot over the years, and I keep coming up with conflicting answers. Let’s see how things add up when I apply my five key criteria.
Dividend
A decent dividend is a must for me. And BT’s forecast 4.7% dividend yield looks good enough. Other things equal, I’d prefer a bigger yield… but that’s where my other checks come in.
BT recently announced a 2% dividend rise to 8.16p, and said it intends “to maintain or grow the dividend each year” depending on other factors. If BT reaches £3bn of annual normalised free cash flow by the end of the decade as planned, I think the dividends should be safe. I score a pass on dividends.
Cover
BT posted 18.8p in adjusted earnings per share (EPS). That covers the dividend 2.3 times, which I see as easily adequate. There’s a wide discrepancy between that adjusted figure and a basic EPS of 10.8p though. That can happen and isn’t necessarily a problem. But we saw the same last year with basic EPS of 8.7p becoming an adjusted 18.5p.
It’s not a reason to reject BT. But I’d keep an eye on it. It doesn’t stop me giving BT a pass on dividend cover.
History
A history of progressive dividends helps boost my confidence over future dividends. Unfortunately, that’s where BT stumbles a bit. BT paid a 15.4p dividend for 2019. It was slashed when the pandemic hit, but then came back at much lower levels. Even the 2025 dividend was only a bit more than half of 2019’s.
Cover was thin back then, and I reckon a cut was needed. But I think that should have been dealt with a lot sooner, and I have to mark this one as a fail.
Forecasts
Forecasts aren’t high-confidence things. But at least the analysts expect dividend rises for the next couple of years. And that fits in with what BT was saying in its FY results announcement.
Forecast earnings show good cover too, so that’s another pass for a score of three out of four so far.
Debt
Finally, something that can kill a dividend in the event of a financial squeeze. BT’s debt is almost high enough to bring actual tears to my eyes. At 31 March, net debt reached £19.8bn. That’s another increase, though the company put the rise down to £0.8bn in pension fund contributions. Oh yes, BT has a big pension fund deficit too. At least that’s falling and expected to be cleared by 2030.
But that net debt figure is more than BT’s entire market-cap. It’s a clear fail.
The score
BT scores three out of five on my checklist, with debt being my biggest concern. I still think investors who are less worried about debt and can just keep taking the dividends should consider BT for long-term income, and I suspect they’d do well. But I can’t, so I’m out.
