What Dividend Hunters Need To Know About Lloyds Banking Group PLC

Royston Wild looks at whether Lloyds Banking Group PLC (LON: LLOY) is an attractive income stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at whether Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is an appealing pick for those seeking chunky dividend income.

On track for 2014 dividend resumption

Of course, the consequences of being bailed out by the UK taxpayer in October 2008 has meant that Lloyds has been unable to dish out shareholder payments ever since. But the company is aiming to start forking out dividends sooner rather than later, and chief executive António Horta-Osório noted in February that the board:

expects to apply to the regulator in the second half of the year to restart dividend payments at a modest level and to deliver LLOYprogressive and sustainable payments to shareholders thereafter.”

Convinced by such overtures, the City’s number crunchers expect the dividend conveyor belt to jolt back into life later this year, and expect a final payout of 1.5p per share to materialise for 2014. A full-year dividend of 3.3p is anticipated in 2015.

A partial payout this year translates into a 2.1% yield, although next year’s significant hike drives the readout to a not-inconsiderable 4.1%. This compares extremely well with a forward average of  3.2% for the complete FTSE 100.

Transformation package to keep payouts rolling

Income investors can take heart from forecasts which indicate that predicted payments — at least during the medium term — should be protected by strong earnings growth. Brokers expect Lloyds to bounce from losses of 1.2p per share in 2013 to earnings of 7.3p this year, with a 10% advance to 8p anticipated in 2015.

These projections provide the bank with chunky dividend coverage of 4.9 times predicted earnings in 2014, and although this drops to 2.4 times next year, this is still comfortably above the safety threshold of 2 times.

Lloyds’ post-bailout restructuring plan has seen the company significantly slash costs and hive-off a multitude of non-core assets to bolster the balance sheet, as well as invest in a multitude of new products and services in order to attract UK retail customers through the door. This approach helped underlying profit more than double last year, to £6.2bn, and the overhaul programme has plenty more left in the tank.

In the immediate term Lloyds’ dividend prospects lag those of the competition, as the business awaits official regulatory approval to begin doling out payouts to its investors once more. But beginning from next year, I expect the transformed bank to deliver increasingly appetising payout prospects, delivered in line with solid earnings growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston does not own shares in Lloyds Banking Group.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »