Just what does Lloyds Banking Group (LSE: LLOY) have to do? Is a pre-tax profit of £2bn in the second quarter not enough to satisfy investors? It would seem not, as the Lloyds share price lost ground on Thursday after the bank released first-half results.
It wasn’t a big fall, and the shares had been slightly ahead in morning trading before falling back. But it came even though Lloyds lifted its full-year guidance. Oh, and the bank also “reintroduced a progressive and sustainable ordinary dividend policy, with an interim ordinary dividend of 0.67p per share.”
That’s not a huge dividend, so maybe there’s cause for some disappointment there. Annualised, it would provide a yield of only around 3%, which isn’t a lot. I do expect the final dividend to come in significantly higher, though. We are, after all, only just starting to get some idea of what the post-pandemic UK economy is going to look like. And I did expect caution in the restarting of the bank’s dividend policy.
On the recovery front, I was buoyed to see Lloyds reveal a £656m net impairment credit for the half, with £333m of that in the second quarter. The company also recorded “management judgements in respect of coronavirus retained, now c.£1.2 billion“. If more impairments can be released in the second half, maybe the Lloyds share price might finally get going again.
I want dividends
I invested in Lloyds for its ability, hopefully, to provide me with a decent long-term income stream. On that front, I’m content with the dividend situation at the moment. But after restructuring following the financial crisis, and since Brexit, Lloyds has focused on the UK retail banking business. That means it’s firmly coupled to the UK economy now, and doesn’t have the international reach to provide diversification the way, say, Barclays does.
That must surely figure in the market’s lukewarm response to Thursday’s results. It’s not as if the UK business is going poorly, mind. Lloyds saw increases in loans and advances, including a strong mortgage book. Customer deposits are also on the rise, resulting in a loan-to-deposit ratio of 94%. In Lloyds’ words, that that should “provide a strong liquidity position and significant potential to lend into recovery“.
Lloyds share price stagnation?
Would I buy now? If I didn’t already have some, yes, for sure. The current Lloyds share price is still below my purchase price from some years ago. And I fear it will remain low for some time to come, all down to that troublesome UK economy. I wonder if we might need to see a couple of post-pandemic quarters of decent economic figures before the investment world will make it up with the banks?
But if dividends get back to strength, that will keep me happy. I don’t intend to sell my shares, so the share price itself doesn’t really mean much to me. Well, except that a continuing low one might tempt me to buy some more.