Lloyds (LSE: LLOY) (NYSE: LYG.US) is expected to announce higher-than-expected earnings. The group will reportedly beat analysts’ forecasts, having rebuilt a portfolio of £50 billion in UK government bonds.
Already widely expected to resume dividend payments in 2014, this news only increases the likelihood of that happening. There is now further momentum that the bank, 33% owned by the taxpayer, will revert back to full private ownership this year.
This follows widespread despair in the banking sector after Ed Miliband pledged to break up the biggest UK banks, which in total wiped a £1 billion off the value of the taxpayer-owned banks last week. Mr Miliband promised there would be a “reckoning” with the banks.
Mortgage madness
The profits of Lloyds are recovering in concert with a growing economy, while the bank tackles its legacy of bad debts. Lloyds is Britain’s biggest mortgage provider and looks set to further benefit as the housing market thrives. Naturally, this should benefit shareholders.
Confidence is such in the housing market that 51% of homeowners think that the value of their property will increase in 12 months. Furthermore the government-backed initiative Help to Buy is proving particularly popular with young people, and mortgage approvals currently stand at their highest level in over six years.
Interest rates could also rise as unemployment drops to a fraction above 7% — which is the point the Bank of England said it would consider an increase. The interest rate increase won’t be a dramatic as, due to low inflation, the sensible thing is for interest rates to rise gradually.
Looking forward, however, interest rates and mortgage rates should eventually increase, creating further avenues for the profits at Lloyds to surge.
All of this can only add to Lloyds’ momentum going forward. If the property market does well then your wealth should prosper.
Where’s the dividend?
As a consequence of the Lloyds partly becoming nationalised it has not paid out a dividend since 2008. Lloyds’ share price has increased 200% over the past two years and, if you’re wondering whether that’s sustainable, it isn’t.
You likely won’t want to be buying into Lloyds as growth stock, then. But a secret you should know is that dividend stocks, as a group, readily outperform their non-dividend paying counterparts.
There are many reasons why buying into dividends can make you richer: they increase your income (without requiring you work more hours); they beat inflation; and, if a company is able to pay a dividend, the cash levels required to do so indicate stability.
Presently analysts forecast a payout of 2.4p per share from Lloyds in 2014, or a yield of 2.8%. Barclays, on the other hand, offers a prospective dividend yield of 3.6% and maintained dividend payments throughout the financial crisis.
