ii view: BT makes tough decision on dividend

Covid tips the balance, and investment costs are now taking priority over shareholder returns.  

Full-year results to 31 March 2020

• Revenue down 2% to £22.9 billion
• Earnings per share down 20% to 17.5p
• Dividend payment suspended
• 2021/2022 dividend payment down to 7.7p per share from 15.4p in 2019
• Offering no guidance for year ahead

Chief executive Philip Jansen said:

"BT had a positive year delivering results in line with expectations and completing our £1.6 billion phase 1 transformation programme, one year ahead of schedule.

"Covid-19 has changed everybody's world and I am immensely proud of how BT has responded to the challenges the Covid-19 crisis has presented.

"In order to deal with the potential consequences of Covid-19, allow us to invest in Fibre-to-the-Premises (FTTP) and 5G, and to fund the major five-year modernisation programme, we have also taken the difficult decision to suspend the dividend until 2022 and re-base thereafter.”

ii round-up:

BT provides fixed-line phone services, internet broadband, mobile and TV products as well as networked IT services.

It serves the needs of customers in the UK and in 180 countries worldwide.

Along with serving UK consumers, businesses and the public sector, it also provides cloud and networking services to global multinational organisations.  

For a round-up of these full-year results, please click here.

ii view:

BT is the largest provider of consumer fixed-line voice and broadband services in the UK. Its cash generating qualities have made it appealing to income-seeking investors. Even in a recession, consumers are unlikely to give up their broadband and mobile phone services. 

But Covid-19 has given us no normal recession. Government pressure and the huge expenditure required to roll out its fast fibre network to the whole of the UK by 2025 had already been weighing heavily. Add in the cost of both upgrading its mobile phone network to 5G and a five-year modernisation programme – along with already high net debt – and tough decisions regarding the dividend had to be made. 

Both the final dividend from 2019 and payments for the current full year have been scrapped. Payments are then expected to resume but will be cut to half of their former full-year total.

For investors, the dividend decision is clearly a major blow. News of a likely merger between Liberty Global's (NASDAQ:LBTYA) Virgin UK broadband division and Telefonica's (XMAD:TEF) O2 business adds renewed competitive pressure. Required investment costs now appear to have overtaken shareholder returns in their order of priority. With no dividend income, investors will demand capital appreciation. For that to happen, heavy investment must begin to pay off.  

Positives

• Government previously pledged £5 billion to assist fast broadband roll-out
• 5G network now covers over 80 UK towns and cities

Negatives

• Dividend payment now suspended
• Revenue or sales down 2%

The average rating of stock market analysts:

Cautious buy