For years I’ve been frightened about dividends from BT Group (LSE: BT.A) shares. I’ve at all times appeared on the firm’s capital expenditure (capex), and its excessive internet debt ranges, and questioned how lengthy it might hold the money funds going.

However then, BT retains managing it. And although the share price is up a bit this yr, we’re nonetheless taking a look at a forecast dividend yield of 5.6%.

Dividend forecasts

If these dividends carry on going at their present ranges, we’d have a pleasant long-term earnings funding right here. And if present dealer forecasts are something to go by, they appear good, a minimum of till 2027.

The figues within the desk under are all primarily based on a BT share price of 142.5p, at market shut on 4 October. They present 2024’s outcomes, with the subsequent three years of forecasts.

Why do I feel BT dividends could be safer now? It’s partly as a result of the corporate says it’s handed the purpose of peak capex for full-fibre broadband. And it’s partly as a result of forecasts present sturdy sufficient earnings to supply first rate dividend cowl.

Rising debt

That debt hasn’t gone away although. The truth is, internet debt is a bit larger this yr. It’s up 3.1% to £19.5bn, from £18.9bn a yr beforehand. Anlaysts anticipate it to develop a bit extra within the subsequent few years too.

I feel it pays to take a second to let that sink in. BT’s internet debt is about the identical as its complete annual income. And it’s 2.4 instances the 2023-24 full-year EBITDA.

I’ve typically thought it might be higher to make use of surplus money to cut back the debt relatively than pay dividends. Nevertheless it seems to be prefer it wouldn’t have an enormous impact.

Dividend price

Within the final full yr, dividends price £759m. Debt repayments within the interval got here to £1.68bn, with £865m paid in curiosity.

So the dividend money amounted to solely 3.9% of BT’s internet debt. I discover that each reassuring and scary. It makes me suppose BT’s prone to hold paying the dividends, as a result of they don’t truly price that a lot by comparability. Nevertheless it provides me a really feel for simply how large the debt is.

Progressive

The board mentioned: “We reconfirm our progressive dividend coverage which is to take care of or develop the dividend every year“. Nevertheless it added some stuff about “making an allowance for quite a few components“.

This highlights that there’s by no means a assure with regards to dividends. And buyers should remember that the money simply won’t flip up.

I’m nonetheless torn over whether or not to purchase BT shares. I actually do concern that the debt might come again and chew. It’s been constructed up by the huge price of fibre rollout. And BT appears to be pinning its hopes on large takeup. I concern prospects could be sluggish to modify.

However a long-term dependable yield could be very nice.