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He BT Group (LSE:BT.A) share price received a nice boost in May, thanks to a healthy set of full-year results.
The key points were summarized by CEO Allison Kirkby, who told us the company had approved “maximum capex on our full fiber broadband rollout“.
BT also delivered on its £3bn cost savings plan a year ahead of schedule. And he added that “We have now reached the turning point in our long-term strategy.“.
What does it mean?
BT still has huge debt and still faces a huge pension fund shortfall. But if we really have just seen a turning point, I think we could be facing a new reality.
And that reality is that my fears about BT's dividend could be in the past.
I've never had much confidence in it. But if earnings and cash flow improve from here, I think the long-term dividend prospects could be strong.
And BT could be a good stock to generate some future passive income.
Passive income
The dividend yield is currently expected to be 5.7%. And that's a good return, especially if it's sustainable. Forecasts see it stable over the next few years, although I expect cash increases in the long term.
However, the high performance itself is a direct result of the falling share price, so that may not last.
I see a chance for share price growth now and a turnaround from the decline of the last decade… It's hard to remember that, as recently as 2015, BT shares hit 500p.
Anyway, let's say just a modest 2% annual price growth. This is in line with what the Bank of England wants to achieve to reduce inflation.
This amounts to a total annual return of 7.7%, a bit ahead of the long term. FTSE 100 average. How much could that earn you in passive income?
Long term wealth
Let's say I can use half my annual ISA allowance and save £10k each year. If it all goes to BT and I reinvest my dividends into more shares, I could make quite a bit of money.
If I did it for 20 years, I could get a pot of £460,000, more than double the money I had invested. If I do it for 30 years, I could have more than a million pounds, or more than three times my total. amount invested.
And that, even with a dividend yield lower than BT's current 5.7%, could generate a very good annual passive income for me.
Danger
Now I think it would be crazy to put all my money in one stock. So if I ever bought BT shares, they would be part of a diversified portfolio alongside my other dividend stocks.
And BT still faces a very real risk due to its debt. Oh, and the competition.
Still, it's good to talk. And talking costs money…money that could help generate a nice long-term passive income for shareholders.