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Jefferies thinks BT’s dividend is safe as it predicts possible return to earnings growth next year

Some have pointed to BT’s dwindling earnings as a key reason why the divi is not sustainable, but the US broker believes there is a “highly credible prospect” earnings will return to growth next year

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And a dividend cut would be unnecessary and “illogical”, according to Jefferies' analysts

Much noise has been made about the sustainability of BT Group PLC’s (LON:BT.A) dividend in recent weeks.

The build-up to the FTSE 100-listed firm's latest annual results was dominated by rumours that new chief executive Philip Jansen might cut pay-outs to fund a string of expensive investments over the next few years. But the telecoms giant held firm and kept its 15.4p annual divi in place.

READ: BT’s dividend is safe…for now

That hasn’t stopped some in the City from speculating that BT will have to make another decision over its dividend in the near future.

Not Jefferies, however, which has told clients that BT’s dividend is “well covered” and that cutting it would be “illogical” and unncessary.

Many of the City’s fears stem from the firm's falling profits, which are set to drop once again this year. After all, if BT is bringing in less money, there is less to return to shareholders.

Earnings set for return to growth

But analysts at Jefferies think there is a “highly credible prospect” that the blue chip company will return to EBITDA (underlying earnings) growth next year which should ease any concerns.

“[The] decision to keep dividend policy unchanged shows the new CEO’s confidence in the business after his due diligence. It would be illogical (and is not necessary) for BT,” the Jefferies' analysts said in a note to clients.

After the grim couple of years that have followed an accounting scandal in BT’s Italian division, Jefferies thinks the outlook is starting to look brighter.

Outlook improving

The chin scratchers point to recent price hikes from rivals Sky, Virgin and TalkTalk as evidence that consumer market conditions aren’t deteriorating as badly as some have suggested.

They have also been impressed by new CEO Jansen’s focus on achieving goals that will position BT well over the longer-term.

“Our overriding impression is that BT under its new CEO is a lot more focused on delivering goals that will endure over the long-term (regulatory settlement on FTTP, fixing sources of unpopularity such as the loyalty price premium and customer service) than setting itself guidance challenges in the near term.”

Those near-term challenges could actually play into BT’s hands, Jefferies analysts said, when it comes to discussions with regulator Ofcom.

“Within limits, pressure on forecasts and the share price may assist BT in discussions with Ofcom,” they added.

BT shares were up 0.4% to 204p on Tuesday.

Quick facts: BT Group PLC

Price: 207.5 GBX

LSE:BT.A
Market: LSE
Market Cap: £20.51 billion
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