BT holds nerve with unchanged dividend

BT's dividend remains under threat despite today's H2 results. Will CEO Philip Jansen cut in 2020?

BT (LSE:BT.A) income investors were kept on hold again today as the high-yielding company once more ruled out an imminent cut to its chunky dividend.

The group's half-year results were in line with expectations and featured an unchanged interim pay-out of 4.62p alongside a pledge to retain the £1.5 billion full-year payment at 15.40p.

How much longer BT is able to stick to its policy of maintaining or growing the dividend each year is likely to depend on the future cost of accelerating the roll-out of full-fibre broadband and the returns that regulator Ofcom will allow BT to achieve.

Talks over Ofcom's proposals for regulating BT's Openreach division are ongoing, meaning that CEO PhIlip Jansen's spending plans are in limbo.

He said today that Openreach had already significantly accelerated the pace of the full fibre build and was now passing a home or business every 26 seconds. Openreach announced a further 29 locations in its build plan to reach four million premises by March 2021, although PM Boris Johnson has said he wants a country-wide roll-out by an earlier-than-expected 2025. 

Analysts at Jefferies speculated earlier this week that a 20% dividend cut might be the tactical concession from Jansen that clinches a favourable regulatory outcome from Ofcom in 2020.

This would take the dividend yield down from 7.7% to about 6.2% - still above the company's peers at around 5%. Trimming the dividend outlay by around £300 million would accelerate leverage reduction and allow BT to show a dividend covered twice by free cash flow.

Jefferies added that it would be "illogical" for BT to show its hand while the Ofcom proposals are still at a consultation stage. The broker has a price target of 335p, which it retained today in the wake of the half-year results.

Shares have recovered well since dipping to a nine-year low of 159p in August. They are now trading above 200p, with today's results helping the blue-chip stock improve 2% to 205p.

Half-year revenues of  £11.5 billion were marginally lower due to the impact of regulation, declines in legacy products, and a strategic move to reduce low margin business.

Analysts at Morgan Stanley said consumer trends remained weak, with the EE owner's post-paid mobile revenues down by 3% year-on-year and average revenue per user 5.5% lower.

In addition to EE's new unlimited data plans for 4G and 5G consumer and SME customers, BT has launched 5G smartphone plans for BT Mobile consumer and business customers. Other initiatives include bringing BT to the high street in over 600 EE/BT dual-branded stores.

Underlying earnings of £3.9 billion were down 3%, with content costs and investment to improve competitive positioning partly offset by £1.1 billion of transformation benefits through BT modernisation plans.