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A Closer Look at BT Group plc (ADR) (BT)’s Dividend Potential

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BT Group plc (ADR) (NYSE:BT)LONDON — Dividend income accounts for around two-thirds of total returns, the actual rate of return taking into account both capital and income appreciation. Given that share prices are often volatile and unpredictable, the potential for plump dividends can give shareholders much-needed peace of mind for decent returns.

I am currently looking at the dividend prospects of BT Group plc (ADR) (NYSE:BT) and assessing whether the company is an appetizing pick for income investors.

How does BT Group’s dividend history stack up?

Metric 2010 2011 2012 2013
FY dividend per share 6.9 pence 7.4 pence 8.3 pence 9.5 pence
DPS growth 6.2% 7.3% 12.2% 14.5%
Dividend cover 2.7 times 2.8 times 2.9 times 2.8 times

Source: BT Group plc (ADR) (NYSE:BT) company accounts.

BT Group plc (ADR) (NYSE:BT) has steadily ramped up dividend payments over the past four years, moving in line with robust earnings growth, with the annual shareholder payout accelerating over the period and breaching double-digits over the past 24 months.

The telecom giant has also maintained dividend cover well above the widely regarded safety benchmark of two times forward earnings.

What are BT Group’s dividends expected to do?

Metric 2014 2015
FY dividend per share 10.8 pence 12.3 pence
DPS growth 13.7% 13.9%
Dividend cover 2.4 times 2.3 times
Dividend yield 3.6% 4%

Source: Digital Look.

The telecom giant announced last week that revenues dipped 5% in the year ending March 2013, to 18.3 billion pounds, although this did not prevent pre-tax profits advancing 11% to 2.7 billion pounds. The company has undertaken an ambitious cost-saving drive in recent times to improve the bottom line. More excitingly, the firm is intensifying its fight with rival broadcasting giant British Sky Broadcasting to become the U.K.’s foremost “triple play” provider across the television, broadband and telephone spheres.

The company announced the previous day that it would offer its new BT Group plc (ADR) (NYSE:BT) Sport channels to existing broadband clients, a significant broadside to Sky whose stranglehold on Britain’s most popular sports has underpinned its stratospheric two-decade rise. BT estimates that more than 20 million homes currently have broadband, and that it provides to around a quarter of those, illustrating the juicy growth opportunities on offer.

The firm’s rosy outlook prompted it to raise 2013’s final dividend 14% to 6.5 pence, and BT Group plc (ADR) (NYSE:BT) said that it expects full-year payouts to clock in at between 10% and 15% in both 2014 and 2015.

BT Group plc (ADR) (NYSE:BT)’s planned dividend policy is affirmed by City analysts, who expect shareholder payouts to keep rumbling higher in healthy mid-digit territory over the medium term. Earnings per share are anticipate to dip 4% during 2014 before bouncing 9% the following year, and I expected earnings growth thereafter to keep dividends moving higher.

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