Today I am explaining why I believe BT Group (LSE: BT-A) (NYSE: BT.US) is a top pick for both growth and income hunters.
Earnings expected to keep on rolling
Telecoms giant BT Group has long been a terrific pick when it comes to those seeking dependable earnings expansion, the business having seen earnings surge at a compound annual growth rate of 13% during the past five years alone.
Although the effect of considerable capital expenditure is expected to weigh on the bottom line, BT is still expected to see earnings keep heading higher during the medium term at least. Indeed, growth of 4% — to 29.2p per share — is currently pencilled in by City analysts for the year concluding March 2015. And this is predicted to rise an extra 6% next year to 31.1p.
These projections make BT a terrific value play in my opinion. For fiscal 2015 the business changes hands on a P/E rating of 13 times prospective earnings, comfortably below the watermark of 15 times which represents tremendous value. And this falls to just 12.2 times in 2016.
Dividends set to shake the market
And the calculator crunchers expect dividend growth to also continue rolling in the face of further earnings strength. Indeed, BT’s decision last month to hike the interim payout 15%, to 3.9p per share, illustrates the confidence the firm has in its ability to deliver pumped-up profits.
As a result, City brokers predict a full-year payout of 13.2p for this year, up 21% year-on-year hike and creating a yield of 3.5%. This barely tops a forward average of 3.4% for the FTSE 100, but an additional 14% rise forecast for 2016, to 15.1p, drives the yield to an impressive 4%.
Capex drive bolsters growth outlook
And I believe BT’s aggressive investment programmes should turbocharge its earnings and dividend outlook for the coming years. The company has shelled out a fortune to spread its broadband fibre across the country, a move that is allowing it to secure the lion’s share of new net additions and boost revenues across its Consumer division.
As well, the telecoms colossus is also splashing the cash to keep its BT Sport channels well stocked with the best programming and keep its triple-services packages flying off the shelves. The firm holds exclusive UEFA Champions League live broadcasting rights from the 2015/2016 football season, and is expected to bid high next summer to expand its share of FA Premier League rights.
And with BT confirming this week that it is considering “an acquisition of a mobile network operator in the UK” — both O2 and EE are being touted as possible targets — the business could follow the likes of Vodafone in boosting its cross-selling opportunities through selective acquisitions.