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BT share price: is the telecoms giant next for a dividend cut?

BT share price: is the telecoms giant next for a dividend cut?

It’s now more than four years since the BT share price was above 500p, and the shares have been on a steady downward spiral since then.

BT share price decline

In fact, BT Group shares have dropped by over 75% since 2016, to a lowest point of 103p, just managing to keep above the 100p level.

The shares are currently not trading much higher, at around 115p, and following a disappointing third quarter in January, investors will be wondering whether the BT share price will ever regain the levels last attained in 2016.

The wider telecoms sector has had a disappointing performance recently. In fact, there are only two FTSE 100-listed telecoms companies, BT and Vodafone. Vodafone’s share price has also had a tough time, and has followed a similar, though less severe, trajectory than BT’s.

Higher spend leads to Q3 profit fall

When BT updated the market in January for the three months to 31 December, its Q3 numbers showed an adjusted revenue decline of 3% to £5.8bn, while profit fell 4% to £2bn.

At the time, BT chief executive Philip Jansen said the telecommunications giant had “delivered results slightly below our expectations for the third quarter of the year, but we remain on track to meet our outlook for the full year."

Among a number of reasons for the decline in profit was higher spending, after BT Sport secured exclusive rights to screen the UEFA Champions League until 2024, along with the rights to other European leagues.

Revenue also declined across its enterprise business as customers made less use of fixed phone lines. Its Openreach division remains the jewel in the crown, as revenue rose 2% in Q3 to £1.3bn.

Rising debt puts dividend in jeopardy

BT’s biggest problem going forward is how much it will cost to roll out fibre broadband to 4m premises by 2021, as well as how it will finance the £500m it will cost to roll out 5G, without cutting its dividend or increasing debt levels substantially.

Underlying net debt has already risen by £1.1bn from the beginning of the year, and is now at £18.2bn, due to higher capital expenditure, pension contributions and dividend payments. Will BT become the latest FTSE 100 company to take an axe to its payout in these uncertain times?

Investors are primed for a dividend cut after a wave of leading companies cut payouts amid the coronavirus crisis. More than 40 blue-chip firms have cancelled payouts so far this year, according to the broker Peel Hunt, including all the banks.

Can BT recover?

There are few companies that spend as much on their asset bases as telecom companies do, and the industry has a challenge in trying to keep costs down compared to other sectors. This is backed up by Hargreaves Lansdown equity analyst, George Salmon, who has said previously that BT and Vodafone spend “about 15% of revenues on capital expenditure”, compared with an average across FTSE 100 and FTSE 250 firms of “around 7 to 8%”.

As the BT share price has been driven down over the last few years, it has investigated ways that it can turn its fortunes around. Having appointed a new chief executive in 2019, BT has worked to consolidate its TV, mobile and internet packages, and expand its UK audience. Mr Jansen believes the company can return to growth, and BT has focused on cost-cutting and money-raising, having sold its central London office last year for £210m. The company’s acquisition of EE in 2016 has also yet to be fully exploited.

BT Group is due to release its full-year results at 7am on Thursday 7 May.

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