With 2020 not far off now, today I’ll be examining the 2020 dividend forecasts for three very popular UK dividend stocks – BT Group (LSE: BT.A), Royal Bank of Scotland (LSE: RBS), and Royal Mail Group (LSE: RMG).
Below, you’ll find the current consensus dividend forecast, the prospective yield, the expected dividend coverage, and some thoughts on each dividend stock. Just remember though, dividend forecasts aren’t always accurate and are subject to change.
FY2020 dividend forecast: 15.4p
FY2020 prospective yield: 8.4%
BT’s 2020 dividend forecast (for the year ending 31 March 2020) is currently 15.4p per share. At the current share price, that equates to a yield of a high 8.4%. Analysts expect the telecommunications company to generate earnings per share of 23.8p, which gives a dividend coverage ratio of around 1.5.
My thoughts here? Personally, I’m not tempted by BT’s high yield at all. As I explained recently, I don’t think the firm’s dividend payout is sustainable. I say this because the company has a monstrous amount of debt on its books (plus a large pension deficit) and it also faces a substantial amount of capital expenditure in the years ahead. Looking further out to the FY2021 dividend forecast, analysts appear to share my thoughts as the consensus dividend forecast is 12.5p per share. I’d leave this high yield alone.
Royal Mail Group
FY2020 dividend forecast: 15.9p
FY2020 prospective yield: 7.4%
Royal Mail’s 2020 dividend forecast (for the year ending 31 March 2020) is currently 15.9p per share. That equates to a yield of 7.4% at the current share price. Analysts expect earnings per share of 22p, which gives the company a dividend coverage ratio of around 1.4.
This is another dividend stock I’d avoid for now. The reason I’d steer clear is that earlier this year, Royal Mail cut its dividend by 40%. I think buying a dividend stock after a big cut like that is a risky strategy. Given that the company is still facing plenty of challenges to its business, I wouldn’t be surprised to see another dividend cut in the near future. Like BT, analysts expect a lower payout (15.1p per share) from Royal Mail in FY2021. The high yield here is not worth the risk, in my opinion.
Royal Bank of Scotland
FY2020 dividend forecast: 14.9p
FY2020 prospective yield: 6.8%
Royal Bank of Scotland’s 2020 dividend forecast (for the year ending 31 December 2020) is currently 14.9p per share. That equates to a yield of 6.8% at the current share price. Analysts expect the bank to generate earnings per share of 24.4p, which gives a dividend coverage ratio of around 1.6.
Is RBS a good dividend stock to buy? Personally, I wouldn’t buy the stock for its payout at present. The reason I say this is that the company only reintroduced its dividend last year after cutting its payout completely in 2009. That means that it hasn’t yet put together a decent dividend track record that we can rely on, which is one of the first things I look for in a dividend stock. Without a consistent track record, it’s hard to forecast future dividend payouts. All things considered, I think there are much better dividend stocks to buy right now than either RBS or the other high yielders I’ve looked at here.
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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019