Dividend Cut Story: BT Group Scraps Dividend To Spend ‘Billions More’ on Full Fibre Broadband Rollout

Coronavirus outbreak has pushed the British economy into deep recession which has forced many big guns to scrap their dividend payments for the year 2020. The companies’ decision to suspend dividend further track backs to the regulatory directives under which the government urged the British companies, particularly banks, to axe dividend payouts and hold onto the cash that would be required to support the wider economy during the coronavirus crisis.

To date, the total amount of dividend withdrawn has reached billions of pounds as almost all the industries could feel the jitters of economic disruption caused by the pandemic. The list of banks that have already announced the dividend cut includes major high street lenders like Barclays, Lloyds, Royal Bank of Scotland, and HSBC. Shifting the focus to other diverse sectors companies, Kingfisher, Shell, IWG, Crest Nicholson, ITV and InterContinental Hotels are some most discussed names that have recently released their out of the ordinary decision to cancel dividend payment to shareholders.

Now, the giant British Telecom Group (LON: BT.A) has joined the bandwagon to take a historical move of dividend suspension, not taken in last ten years. That means the company would pay nothing at all for the full fiscal year to March 2021 along with no final dividend to March 2020. The decision comes in support of the company’s plan to establish a 5G network and next-generation full-fibre broadband throughout the United Kingdom.

Group’s Chief Official Officer Philip Jansen expressed that the company is arranging to supply full-fibre broadband to homes across the United Kingdom by late 2020.

There has been an intense outrage among investors in response to this news which got directly reflected in BT’s stock price movement on Thursday. The negative market sentiments dragged the stock price 8.14 percent down to last trade at GBX 104.95 on 7 May 2020.

Chairman Han du Plessis acknowledged the response and said that considering the importance of dividends to BT’s shareholders, it has been exceptionally difficult for the Board to take this step in relation to the dividend.

The company further reassured investors to likely distribution of dividend from fiscal 2022 back again, which could be halve the annual payment to 7.7pence per share. BT’s management stated that novel coronavirus has been impacting company’s commercial operations, but at this point of time it’s not reasonable to precisely measure the coronavirus impact on group’s overall results. On this basis, the company did not provide any guidance for the fiscal year 2021 as the coronavirus continues to impact business operation with high uncertainity.

BT Group has most exceptional network infrastructure in the United Kingdom, with leading 4G network, and has been constantly expanding its footprints in 5G network, said Jansen. He further emphasised that after passing 1.3 million premises within the year 2019, the company is centring on more than 2 million premises within the year 2020 and 2021.

Let’s take a look at the company’s financial performance for the full year ended 31 March 2020.

• BT Group’s revenue has decreased by 2 percent to £22.9 billion, reportedly due to the impact of regulation, drop in legacy products, strategic decreases in low margin business and divestments.
• The profit before tax has also decreased to ~£2.35 billion as compared to the prior year’s ~£2.66 billion. The decline primarily reflects the £95 million charge emerging from increased debtor provisions due to novel coronavirus.
• Due to fewer pension contributions, one-off cash flows and decrease in normalised free cash flow, group’s net cash inflow from operating activities significantly increased by 47 percent to ~£6.27 billion.
• Due to the implementation of IFRS 16, and cash outflows of net business, the net debt of the company increased to ~£17.96 billion as compared to the prior year.
• The capital expenditure of the company has also increased marginally by £193 million to ~£3.96 billion, excluding BDUK funding deferral.

Overview of BT Group

BT Group (LON: BT. A), formerly known as British Telecom, is an LSE-listed leading multinational telecommunication company. Headquartered in London, the group provides communications services and products in about 180 nations. The company’s core business includes the supply of broadband, mobile network, fixed-line services as well as television packages and networked IT services.

S&P 500 Dividend Cuts and Some Trending Stocks:

Carnival PLC (LON:CCL) - Luxury cruise ship operator, Carnival announced a dividend cut in order to strengthen its liquidity position. It is a world’s largest leisure travel company with the fleet of most luxury cruises in the world that includes Carnival Cruise Line, Princess Cruises, AIDA Cruises, Costa Cruises and Ruby Princess among others.

The stock last traded at GBX 937, up 3.10 percent, on 7 May 2020. Its 52-week high and low are GBX 4080 and GBX 581, respectively. The market capitalization of the company stands at GBP 8.35 billion with the annual dividend yield of 16.96 percent as at last trading session of 7 May 2020.

Royal Dutch Shell PLC (LON:RDSA) – The world’s leading energy company, Royal Dutch Shell slashed its dividend payment for the first time since the World War II. It reflects the massive disruption caused in oil and gas sector due to countrywide lockdowns, travel bans and an unprecedented crash in oil prices.

Further, the company has slashed its capital expenditures, suspended share buybacks and is actively seeking the divestment program to offload worth $10 billion assets. RDSA stock last traded at GBX 1,320, up 2.71 percent, on 7 May 2020.

The market capitalization of the company stands at EUR 116.89 billion with the annual dividend yield of 9.77 percent as at last trading session of 7 May 2020.

Standard Chartered PLC (LON:STAN) – Banking Group Standard suspended its final dividend for the year 2019, which was announced on 28th February 2020. Over the years, the company has shown evidences of financial flexibility to adjust according to the changing market environment, but the ongoing coronavirus crisis has created a high degree of uncertainity for all the players in the market.

STAN shares last traded at a price of GBX 413.40, up 5.00 percent, on 7 May 2020. The market capitalisation of the company stands at GBP 13.05 billion as at last trading session of 7 May 2020, with a beta of the stock recorded at 1.31, reflecting higher volatility compared to the benchmark index.