T
oday I am looking at why I believe Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) could prove a lucrative investment for shrewd stock selectors.
Here are two numbers that I think help make the case.
1.6
Although Lloyds Banking Group is yet to receive the green light from the Prudential Regulatory Authority (PRA) that it needs to get its dividends rolling again, the City is broadly in agreement that payments are poised to start rolling sooner rather than later.
Indeed, broker forecasts suggest that payouts should begin with a reward of 1.2p per share for fiscal 2014. Whilst it’s true that such a payout will provide a yield of just 1.6%, in my opinion this is certainly a decent point at which to get dividends rolling once more, particularly when tallied up against the competition.
For example, Royal Bank of Scotland is only expected to start forking out shareholder payments from next year, when an anticipated 1.6p maiden dividend is expected. If realised, such a figure creates a yield of just 0.5%.
And the yield at Lloyds is expected to leap higher next year, with an anticipated dividend of 3.2p, producing a readout of 4.2%, flying above the current forward average of 3.6% for the complete banking sector.
758 million
Lloyds’ latest financial update, back in the summer, indicated how a steady evaporation of legacy headaches at the restructured bank have seen impairments drop off a cliff in recent times.
Indeed, Lloyds saw impairments 58% lower during January-June, falling to £758m. This compares with £1.81bn during the corresponding 2013 period and £1.19bn as of the end of last year.
The bank cautioned that it expects this figure to creep back towards the £1bn mark during the second half, however. But the market suggests that this projection could be overly cautious, and Investec alone expects the figure to come in at just £541m, another hefty decline.
The effect of a robust UK economic recovery has allowed Lloyds to significantly revise its impairment guidance for the year, and the bank now puts its asset quality ratio at 35 basis points for 2014. This is a significant improvement from the 50 basis point forecast outlined at the start of the year.
And although fears that the economic recovery may be slowing are currently doing the rounds, I believe that Lloyds’ revamped focus towards less-risky operations on the British High Street should keep impairments ticking consistently lower.
