6.1% yield! Here’s the BT Group dividend forecast for 2023 and 2024

At BT Group The change in the share price (LSE:BT-A) for the week is 28%. This means that, based on the current dividend forecast, BT shares are yielding 6.1% for the current financial year (to March).

This is far above the average of 3.7% for FTSE 100 sharing. And the telecom giant is offering similar results for the next fiscal year.

Does this high yield make it a good stock to buy for income investors? Or does BT’s sinking share price indicate that this should be avoided?

BIG dividend

During the height of the pandemic, the business is reduced and then pays the shareholders in full. But in the last financial year it returned to its dividend policy and paid out a total of 7.7p per share.

City analysts do not expect blistering pay growth in the short term. But dividend forecasts of around 7.8p per share for this financial year and next still make for a market-beating result.

This expected dividend is more than anticipated as well. Coverage sits at 2.6 and 2.4 times for financial 2023 and 2024 respectively.

Positive steps

Encouragingly, BT is taking steps to build its balance sheet. This could give the company increased headroom to pay the big dividend that City analysts are predicting.

Last month, it announced plans to merge its Global and Corporate units in a move that will save £100m by the end of fiscal 2025. This will contribute to the company’s plan to shave £3bn from its cost base over the same period.

BT also said that the merger of Global and Enterprise will increase its ability to develop products and services in the field of “next-generation connectivity and unified communications, multi-cloud networking, and advanced security solutions“.

The business is popular in a competitive market. So the move can be crucial to help grow long-term profits.

Predictions are fragile

But as a potential investor, I’m still worried that the dividend could disappoint in the short to medium term. This is mainly due to the company’s high debt pile.

Net debt rose by an additional £801m year-on-year to exceed £19bn in September. And financial obligations are likely to continue to rise as companies spend heavily to expand their broadband networks in the UK.

I am also concerned that BT’s dividend could be lower than forecast when the UK economy collapses. Revenues were just 1% higher in the six months to September. I think it could reverse before too long as cash-strapped households and businesses look for cheaper media service providers. BT may also choose to hold cash in preparation for a prolonged recession.

Dividend coverage of 2 times and above is said to provide a wide margin of safety to investors. But in the case of BT, I would look for better protection because of the threats mentioned above.

On balance I prefer to invest in other FTSE 100 income stocks at the moment.