How much passive income could I make if I buy BT shares today?
Picture supply: BT Group plc
BT Group (LSE: BT.A) shares are on a forecast dividend yield of seven.4% for 2024.
Forecasts present it regular within the subsequent few years, and even rising a bit. And to prime the cake off with icing, the dividend money needs to be round twice coated by earnings.
On the face of it, it appears like BT shares might be an important long-term revenue purchase. And I feel they could certainly be. I can’t ignore the horrible 10-year share value document, although.
The BT dividend
Earlier than I attempt to work out what I’d earn in revenue from BT shares, I would like to consider the dividend a bit. Some issues I like nicely sufficient, others not a lot.
BT dividends rating nicely on the yield, which is nicely up within the prime half of the FTSE 100. I wish to see dividends being coated by earnings, in order that’s one other plus for BT.
My favorite dividends come from money cow firms that don’t must hold investing big sums to maintain going. BT has affordable, and rising, money movement. However, boy, does it want to take a position large to develop its broadband and different choices.
Debt
Then I additionally favor companies that aren’t beneath debt stress. And, nicely, BT scores a giant fats zero on that one.
Web debt of £19.7bn on the final rely? For a corporation with a market cap of simply £10bn? Double ouch! I don’t like that one bit.
Then once more, BT shareholders can level to the truth that the debt is being serviced simply tremendous. And the amount of money handed out as dividends wouldn’t make a lot dent in it anyway.
In actual fact, funding from debt is usually a great way for a agency to benefit from the restricted belongings it has.
How a lot?
So what in regards to the large query, how a lot would possibly I earn from a dividend like BT’s?
Suppose I put a reasonably modest £200 per thirty days into BT shares, they carry on paying me that 7.4% every year, and I purchase new shares with the money?
After 20 years, I might find yourself with £107,000 within the pot. And seven.4% of that might be practically £8,000 a yr in revenue?
Do this with a number of totally different shares, paying first rate dividends, and my previous age would possibly end up fairly comfy.
Take the danger?
Nonetheless, there may be that debt. Oh, and BT additionally has a giant pension fund deficit. And it’s having to take a position a fortune every year to chase bandwidth in a really aggressive market.
And the way a lot capital might I lose if the share value retains on taking place?
The dangers are legion, and a giant a part of me says I ought to hold a superb bargepole’s distance from BT shares.
However one thing else is nagging me to not dig too deep, and simply shut up and take the money.
I’m undecided I can deliver myself to purchase shares in a agency with BT’s debt. However I actually can see how an investor would possibly need to add some to a diversified dividend portfolio.