BT Group: should this FTSE 100 dividend-payer be in your ISA?

BT Group: should this FTSE 100 dividend-payer be in your ISA?

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Vodafone has taken the historic step of cutting its dividend in order to fund further 5G investment. The question now is should BT (LON:BT.Afollow suit and reduce its 7.29% dividend? The communication services giant has seen its share price drop by nearly 10% over the past couple of weeks, suggesting its high yield is not particularly reassuring to the market.

One of the quickest ways to assess this likelihood is to look at the dividend cover (earnings per share divided by dividend per share). Dividend cover of two times or above is strong, but anything below one and a half times - as is the case for BT - should be stirring us to investigate in more detail.

What is BT's dividend cover ratio?

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. When that happens, it is usually accompanied by a drop in share price value. With that in mind, let’s take a look at BT dividend cover.

We can get all the information we need to see if BT has an adequate level of dividend cover from the group’s StockReport. The group’s FY19 earnings per share were 22p and its FY19 dividend per share was 15.4p. 

Divide the former by the latter and we get an FY19 dividend cover for BT of 1.42. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety. Considering the group's current capital expenditure requirements, a dividend cut might well be on the cards.


Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

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BT's StockRank™

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BT's StockRank™

With a StockRank of 74, BT is more attractive than 74% of the 7,586 stocks we cover in Europe, according to our proprietary ranking system.

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