This week two FTSE 100 banks — Barclays and NatWest reinstated their dividends along with their earnings releases. I think this raises expectations that Lloyds Bank (LSE: LLOY) will do the same when its financial results come in next week. The Lloyds share price took quite the fall last year when it stopped paying dividends.
Why did Lloyds Bank stop paying dividends?
Lloyds Bank was hardly the only FTSE 100 biggie to stop paying dividends. As the pandemic spread, many companies foresaw (and in many cases rightly so) a sharp downturn in business. This led them to stop dividend payouts.
For LLOY, and indeed all other banks, however the situation was a bit different. The Bank of England directed them to stop dividends as a precaution. Banking sector health is crucial to the functioning of the entire economy, and the financial crisis of 2008 has taught invaluable lessons in keeping them healthy.
As a result, UK’s banks couldn’t reinstate dividends at will. It’s only after the BoE lifted the restriction at the end of 2020 that they have been able to do so.
Will Lloyds Bank reinstate dividends too?
Other banks and other FTSE 100 companies are getting back to paying dividends now. This alone is reason for LLOY to get back to doing so as well, considering that it’s probably been one of the more attractive features of the stock. A look at the long-term Lloyds share price chart makes it clear that it isn’t a growth stock.
I would think that LLOY will bear this in mind when making its earnings announcement.
Should I buy the Lloyds Bank share?
Which brings me to the million dollar question — should I buy the Lloyds Bank share. It’s an important question going by the stock’s popularity, in terms of daily trading volumes.
I’d consider the three points below before buying the stock:
- Can the Lloyds share price rise from here? There’s no doubt that it has improved vastly since the lowest point it saw in September last year. It’s almost at double those levels. It is still below its pre-pandemic levels though, suggesting it can rise.
- Can Brexit uncertainty play on the stock? With no deal in place yet on financial services, the sector is stuck in limbo. Uncertainty isn’t good for the Lloyd’s share price, I would imagine.
- How much will be its dividend payout? Even if it does start paying dividends again, will it be on par with earlier levels? If the dividend yield turns out to be low, it may not be worthwhile for the investor.
The upshot
There are clearly risks to the Lloyds share price. Lack of Brexit clarity and a slow economy being among them. On the other hand, a continued stock market rally, a potential dividend payout or a high actual payout and expectations of the good UK economic growth in 2021 work in its favour.
I’m going to wait for its results to see its performance, its dividends’ stance, and its outlook before making a call.
