FTSE 100 telecoms firm BT (BT.A) has agreed to sell its London headquarters for around £210 million to a European property fund.
The deal with Orion European Real Estate Fund allows the firm to lease back the building for 30 months while it finds a new HQ.
The company has been under pressure to raise capital as part of a restructuring programme announced in May 2018 that will costs thousands of job and lead to the disposal of offices. There has been much speculation recently that BT will follow Vodafone in cutting its dividend to help shore up its finances.
BT is targeting bringing superfast broadband to 15 million UK households, which will add £500 million a year to costs. The firm has locked horns with regulator Ofcom about the return that BT can make from its investments.
At last week’s Annual General Meeting, BT chairman Jan du Plessis said the telcoms giant is considering cutting the dividend, which currently yields nearly 8%, in the next year or two.
Morningstar analyst Michael Hodel, who covers BT and believes a dividend cut cannot be ruled out, says: “Sacrificing the dividend, at least for a time, could be an expedient way to receive more favorable treatment from Ofcom. The notion of shareholders taking pain to benefit the UK’s infrastructure would likely play well. I could see BT management concluding (likely rightly) that trading a lower dividend today for better long-term economics is in the best interest of shareholders over the long run.”
A change to BT’s dividend would not be well received initially but has been well trailed. The company would follow Vodafone, Imperial Brands and Royal Mail Group, so UK investors are at least braced for changes among high-yielding shares.
Vodafone’s 40% cut to its dividend was preceded by share price weakness that had sent the yield up towards 10%. Despite that, the amount paid out by FTSE 100 companies is still expected to hit a record this year, according to Link Services, but Vodafone’s cut will make a dent in the overall figure.
Hodel assigns a “fair value” of 320p to BT’s shares, against a share price of 180p. The shares hit 500p in 2015 but have been on the slide since. Year to date, the shares have lost 20% despite a strong rise in the FTSE 100 in that period.
Franklin UK Equity Income manager Colin Morton believes BT’s share price has been depressed in recent years – pushing up the headline yield – as the threat of nationalisation under a Corbyn Labour Government has become more likely. He holds BT shares despite a recent bad run and believes that the price could rebound if the nationalisation threat is quashed – and a looser regulatory regime under, say a majority Boris Johnson government, could give the BT more breathing space.
