How safe is the BT dividend payment?

BT (LON:BT.A) is a large cap Integrated Telecommunications Services operator engaged in selling fixed-voice services, broadband, mobile and television products and services, as well as various communications services ranging from phone and broadband to managed networked information technology (IT) solutions and cyber security protection .

The group pays out an attractive rolling dividend yield of 12.7%, which is forecast to fall by -1.88% over the next year.

I'd like to know how safe BT's dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.

Computing BT's dividend cover ratio

Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. 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 trailing twelve month (TTM) EPS is 0.26 and its TTM dividend per share is 0.15. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for BT of 1.41. 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.

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.

If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.