BT full-year results: can the share price hold steady if the dividend is cut?

When are BT’s earnings published?

BT publishes full-year (FY) earnings on 7 May.

BT results: what does the City expect?

BT is expected to report revenue of £22.9 billion, down 2.3% for the year, while pre-tax profit of £2.8 billion is expected to be down 13.3% compared to a year earlier.

BT finds itself in the midst of a huge turnaround programme, and the situation has not been helped by the coronavirus pandemic. It is having to invest in new infrastructure to provide 5G networks while at the same time withdrawing from operations abroad to focus on the UK.

This greater pressure on cash flow, coupled with the dramatic fall in its share price since December (from 200p to 110p), has resulted in a surge in the dividend yield, to 13.5%. This in turn has prompted speculation that the group will cut back its dividend in order to conserve cash while managing to maintain a relatively high yield compared to the FTSE 100’s 4.1%.

How to trade BT’s earnings

BT shares slumped 8.5% the last time results were announced, in January 2020. Meanwhile, the share price’s 14-day average true range (ATR) has returned to more normal levels, with an average price range of 5p over the past fourteen days, compared to almost 10p in late March.

BT shares: technical analysis

BT shares have been an abysmal performer compared to the FTSE 100 since mid-2015, falling 75% compared to a 17% loss for the index. In the process, they have given back all gains since 2010. This trend looks unlikely to reverse.

Since mid-March the shares have continued to decline, reversing the initial bounce to 135p. While support continues to hold around 110p, trendline resistance from 135p has prevented further gains. A break higher targets 140p, while a daily close below 110p and then below the March low of 103p opens the path to more downside.

BT: hard-headed approach required

A dividend cut for BT makes sense at this point. It is hardly the only firm to be doing so, and with a yield solidly in double digits the firm has the room to reduce the payout. But the cash burn will go on, and with economic activity likely to remain weak there will little upside for the shares for the time being.