BT share price: Telco’s pension deficit poses threat to dividend

on May 30, 2016
Updated: Mar 11, 2020

BT Group’s (LON:BT.A) massive pension deficit, which has rocketed to more than £10 billion in a year and a half, risks putting the telco’s payouts to shareholders at risk, The Telegraph has reported, quoting analysts at Macquarie. The news is seen as a concern for investors at the former telecoms monopoly who have enjoyed years of growing dividend payments.

BT’s share price rose 0.74 percent on Friday to close at 451.90p, outperforming the broader London market. The shares have added a little over one percent over the past year but are down more than four percent in the year-to-date.
The Telegraph reported over the weekend that following a health check of the UK’s biggest private-sector retirement plan, analysts at investment bank Macquarie had estimated that the pension black hole at BT had shot up to £10.6 billion, from £7 billion at its last official review in 2014. The research suggests that the former telecoms monopoly would need to increase its deficit payments to £1 billion a year until 2030 to plug the new deficit, which could result in the group halving its current dividend growth rate of 10 percent. Earlier this month, BT revealed alongside its full-year results that it was targeting more than 10 percent dividend growth in each of the next two financial years.

Macquarie analyst Guy Peddy commented that attempts by the blue-chip telco to close its massive pension shortfall had so far proven insufficient despite a recovery plan initiated last year.
“Clearly BT’s plan will prove insufficient,” the analyst said, as quoted by The Telegraph. “We can’t see BT scaling back on sports content or its infrastructure, so the only option left is to soften shareholders’ returns.”
The comments come after analysts at Morningstar cautioned earlier this month that BT’s dividend growth could pose underlying risks, including reducing cash available for further debt reduction in the company.
As of 09:05 BST, Monday, 30 May, BT Group plc share price is 451.90p.