Lloyds Banking Group PLC’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US).

Dividends past

The table below shows Lloyds’ five-year earnings and dividend record.

  2008 2009 2010 2011 2012
Statutory earnings per share (EPS) 6.7p 7.5p -0.5p -4.1p -2.0p
Dividend per share 11.4p

Shareholders have experienced a long barren period for dividends since the financial crisis, and statutory EPS has been negative for the last three years.

Of the Footsie’s ‘Big Five’ banks, Lloyds and fellow bailed-out bank Royal Bank of Scotland have been the biggest dividend offenders.

Dividends present

As expected, Lloyds didn’t restart dividends at the half-year stage this year. On the positive side, the company posted a profit, with EPS coming in at 2.2p, and management said:

“As a consequence of the significant progress made in strengthening the balance sheet we now expect to commence discussions with our regulators in the second half of this year on the timetable and conditions for dividend payments”.

In a third-quarter statement released at the end of October, the board said those discussions had now commenced.

Analysts are divided on whether or not Lloyds will announce a dividend when it releases its annual results on 13 February. The split between bulls (generally forecasting 1p) and bears (forecasting 0p) has produced a consensus of 0.5p — covered over 10 times by consensus forecast EPS of something over 5p.

At a share price of 78p, Lloyd’s current-year dividend consensus represents a measly yield of 0.6%.

Dividends yet to come

There’s more optimism all round from analysts on the dividend for Lloyds’ 2014 year. The consensus is for 2.25p, with the most enthusiastic penciling in 4p — representing yields of 2.9% and 5.1%, respectively, at the current share price. The consensus EPS forecast is around the 7p mark.

It was reported earlier this year that Lloyds’ chief executive, Antonio Horta-Osorio, is targeting paying out up to 70% of the bank’s earnings in dividends within three years.

In the long run Lloyds should be capable of paying a relatively high income, growing in line with, or a little ahead of inflation. However, banks are inevitably geared to economic cycles, with downturns posing threats to earnings and dividends. Lloyds’ more-or-less pure UK focus adds the additional risk of exposure to a local adverse event, which a geographically diverse bank could more readily take in its stride.

Analysing banks is a little different to analysing most other businesses, which is why I recommend you read the Motley Fool’s brand new "Essential Guide to Investing in Banks".

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> G A Chester does not own any shares mentioned in this article.