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BT axes dividend until 2022

The group expects to resume payouts in 2022
May 7, 2020

BT (BT.A) has suspended its dividend for the first time in 19 years. The telecoms giant said that this “difficult decision” would enable it to manage the potential fall-out from Covid-19, while also allowing it to fund investments in improved broadband and 5G mobile services. The group expects to reinstate the dividend in 2022, but at just 7.7p – half the level of last year’s pay-out.

IC TIP: Hold at 105p

BT is not the first telco heavyweight to slash share-based returns to shareholders. UK peer Vodafone (VOD) did so last May, while Orange (FP:ORA) and Deutsche Telekom (GR:DTE) have cut more recently. UBS noted that BT’s “investors were braced for a cut”, although the bank's analysts added that “the outcome is worse than expected and will draw questions on the near-to-medium term outlook”. However, they also insist that the group is taking the right action for the longer-term - pragmatism prevails.

The announcement from BT followed the news that Liberty Global (US:LBTYA) and Telefónica (SM:TEF) have agreed a £31bn merger for O2 and Virgin Media, heating up competition in UK telecoms. Earlier this week, the FT reported that Virgin Media had secured a contract with phone company Three to use its ‘backhaul network’, strengthening its position in the UK market for the provision of connections to 5G mobile masts, at least those which haven't been razed to the ground. 

BT has accelerated its fibre-to-the-premises (FTTP) target to 20m by the mid to late-2020s, from an initial ambition of 15m, including a “significant build” in rural areas. The group is leading the development of outdated copper networks in order to improve national connectivity. No bad thing; the UK is currently ranked 33 out of the 36  member states of the Organisation for Economic Co-operation and Development (OECD) for access to fibre fixed broadband.

These development plans were outlined in BT’s results for the 2019/20 financial year, which revealed a 3 per cent decline in adjusted cash profits for the year to £7.9bn due to lower revenue and investment in customer experience. Overall revenue was down 2 per cent to £22.9bn, which management attributed to the impact of regulation, declines in legacy products and strategic reductions in low-margin businesses.

The group also announced a five-year modernisation programme, aiming to streamline processes and products, while switching off a number of legacy services. It anticipates that the initiative will deliver gross annualised savings of £2bn. Meanwhile, BT’s pension deficit as of March 2020 stood at net £1bn, compared to £6bn at the same point last year. It explained that this largely reflected a rise in the real discount rate, positive returns and deficit contributions paid over the period – adding that with “extremely volatile” interest rates, the deficit is likely to have worsened since the period-end.