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MARKET COMMENT
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There has been much speculation in recent weeks that some banks, in particular Lloyds TSB (LSE: LLOY)(NYSE: LYG) and Abbey National (LSE: ANL), will cut their dividend payouts. Many banking shares have mightily handsome dividend yields at the moment. On current forecasts Lloyds is yielding 6.6% at today's share price of 530p. Abbey National's yield is higher still. Its current share price of 636p implies a prospective yield of a whopping 8.2%. This has attracted many investors. Other major banks such as HSBC (LSE: HSBA)(NYSE: HBC), HBOS (LSE: HBOS) and Barclays (LSE: BARC)(NYSE: BCS) all yield somewhere between 4% and 5%. Attention has been focussed on Lloyds because it may need to inject more money into its Scottish Widows life insurance subsidiary. However, Lloyds reportedly invited a number of analysts to its head offices yesterday to reassure them that it has no plans to reduce its dividend payout. It's the sort of the thing you might expect the company to inform its private shareholders about too, through an official statement perhaps, but let's not get too bogged in that. Given these reports, unless there is a further downwards lurch in the stock market, it would seem that Lloyds' payout is reasonably secure. Abbey National is a different kettle of fish though. It has issued a profit warning and replaced its chief executive in recent months. New head honchos often like to take the kitchen sink approach when they are first appointed and this can include 'rebasing' (i.e. savaging) the dividend so that it's a lot easier for them to deliver steady dividend increases for several years thereafter, which is what most institutional investors prefer to see. Abbey is expected to issue a trading update next week and, although there may be no news on dividends then, some brokers are expecting its payout to be reduced by as much as 30% to 40% for 2002. However, even a cut at the top end of this range would still leave the shares yielding a highly respectable 5%. There's certainly something wrong with the Abbey National situation. A yield of 8.2% is higher than the rate of interest you pay on some unsecured personal loans these days, let alone what you'd expect to pay on a mortgage or receive from a gold-plated savings account. Some form of cut looks likely but even taking this into account both Abbey and Lloyds do look pretty tempting at the moment.