Expect BT dividend cut in 2021, Jefferies says

BT is likely to cut its dividend by 30% from 2021 to reduce debt and help clinch favourable full-fibre broadband (FTTP) regulation, Jefferies analysts said.

Reiterating their 'buy' rating and 330.0p price target on BT shares, the analysts said BT was priced for a dividend cut with a 10% dividend yield. Jefferies included a 30% cut to the payout in its forecasts from full-year 2021 and said this would leave BT building FTTP at six times the pace of Virgin while investing heavily and reducing leverage from 2022.

"It does not seem especially logical to avoid BT on the basis of a prospective dividend cut," Shore's analysts wrote in a note to investors. "A dividend cut may be the tactical concession that clinches a favourable regulation decision on FTTP, establishes BT's alignment with government investment priorities and minimises risk of backtracking on an agreed framework at the next market review in 2026."

BT does not need to cut its dividend before negotiating an acceptable settlement with its regulator Ofcom, Jefferies said. BT lost less broadband market share in the third quarter than in any quarter for three years, Jefferies said.

Instead of pricing aggressively BT is regaining customer appeal through its BT Halo service and rebalanced list prices. BT's repricing since September 2018 leaves it less exposed to end of contract negotiations than rivals that have increased prices ahead of inflation, they added.