3 Great Reasons Why Lloyds Banking Group PLC Is Set To Take Off

Today I am looking at why I believe Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is an excellent stock in which to deposit your cash.

Transformation scheme paying off handsomely

Lloyds is a long-standing high-street heavyweight, and the company’s strategy of re-concentrating its efforts on its core UK businesses while shedding operations overseas is a key plank in its recovery story.

Combined with an ambitious cost-reduction drive and shake-up of its products and services, the bank saw underlying profit surge to £2.9bn in January-June from £1.04bn in the corresponding period last year. I believe that Lloyds’ repositioning as a “low risk, highly efficient UK retail and commercial bank” has much further to run, with new customer propositions and its rolling expense-cutting drive set to keep earnings ticking higher.

Streamlining strategy continues to deliver

Lloyds continues to make excellent progress in its bid to hive off its non-core assets and boost the balance sheet. Indeed, the bank is looking good to reduce its non-core assets to £70bn by the end of the year, a full 12 months ahead of schedule.

The bank announced in August that it had sold its Heidelberger Lebensversicherung German life insurance business to Cinven Partners and Hannover Rück for a cash consideration of approximately £250m. As well, the bank sold off a portfolio of leveraged loans to a subsidiary of Goldman Sachs for around £254m. The funds will strengthen the firm’s financial position as well as help it to achieve its core tier 1 capital ratio goal above 10% by the close of 2013.

Earnings recovery to get dividends back on track

And the City’s analysts expect the company’s solid turnaround strategy to result in a steady earnings turnaround for the medium term. Indeed, losses of 2p per share in 2012 are anticipated to bounce to  earnings per share of 5.1p in 2013 before striding a further 30% next year to 6.6p.

This projected earnings turnaround leaves the company in a good financial position to resume dividend payments, and the semi-nationalised bank plans to hammer out a deal with regulators over both the timing and conditions of making future shareholder payouts.

Still, analysts expect the company to shell out its first dividend since the 2008/2009 geo-financial crisis this year, with a dividend of 0.7p per share carrying a yield of 0.9% at current prices. But dividends are expected to rev higher from next year onwards, with a payment of 2.4p per share resulting in a 3.1% dividend yield. And I expect dividends continue moving markedly higher in line with earnings growth.

Multiply your investment income with the Fool

 And if you are looking for other stocks with stunning dividend outlooks like Lloyds Banking Group, you should check out this brand new and exclusive report which singles out even more FTSE 100 winners to really jump start your investment income.

 Our “5 Dividend Winners To Retire On” wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays which we are convinced should continue to provide red-hot dividends. Click here to download the report -- it's 100% free and comes with no further obligation.

> Royston does not own shares in Lloyds Banking Group.