Here’s the dividend forecast for BT shares through to 2029

BT Group (LSE:BT.A) shares have been on a terrific run throughout 2024, rising by double-digits. Zooming out to the last 12 months reveals a tremendous 25% return. But the popularity surrounding this enterprise continues to revolve around its dividend.

Even after the stock price rally, the BT shares currently pay an impressive 5.6% yield. The continuous demand for telecommunications networks, as well as access to fibre optic broadband, generates ample cash flow to sustain this payout. And while dividends have yet to recover to pre-pandemic levels, the overall trend since 2022’s steadily moving things back in the right direction. Or at least, that’s what the latest analyst forecasts would suggest.

But how realistic are these projections? Let’s take a closer look.

Is the forecast realistic?

To kick things off, long-term dividend forecasts have a high degree of inaccuracy. Over the next five years, a lot can change. New technologies may emerge, making fibre broadband obsolete, or a rival firm may find a way to dethrone BT Group as an industry leader, compromising dividends.

Therefore, a healthy pinch of salt’s probably prudent when looking at these projections. But while they’re more likely than not to be off, are they roughly realistic?

Looking at the most recent set of results, there are a few developments that indicate the potential for further dividend growth. The most obvious is the rollout of another £3bn cost-savings initiative after it successfully completed a similar scheme a year ahead of schedule.

By 2029, if CEO Allison Kirkby’s strategy’s successful, BT Group should become a lean, mean money-printing machine. Reduced costs mean greater margins. Management’s targeting a normalised free cash flow generation of £3bn by the end of the decade. That’s almost double what BT currently generates, and it certainly makes dividend expansion far more realistic.

However, there’s still the pressing matter of the firm’s pension deficit as well as its debt mountain. Higher interest rates have adversely impacted both. And continued pressure from both liabilities will likely impede dividend growth significantly even if management hits its free cash flow targets.

That’s likely why the BT dividend forecast only predicts around 3% growth each year, just slightly ahead of target inflation.

Are the shares worth considering?

When it comes to income investments, a 5.6% yield today is nothing to scoff at, especially since it’s expected to grow over time. However, the expected rate of payout expansion’s hardly anything to get excited about versus other income opportunities.

Personally, even if everything goes according to management’s plans, an investment in BT looks more like a way to protect wealth rather than grow it. And since I’m after the latter, this isn’t a business I intend to add to my income portfolio today.