Dividends Set To Double At Lloyds Banking Group PLC

LLOYLloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has raced ahead of fellow struggler Royal Bank of Scotland in the recovery stakes, recording a return to pre-tax profit for the year just ended in December 2013 while the money pit continued to swallow the cash at RBS.

Sure, it was only a modest profit of £415m, but there’s a far more impressive £5.9bn forecast for this year, rising to £7.2bn in 2015 — and that’s back to serious money.

Bullishness abounds

The forecast trend has been bullish too, during a year when expectations have generally been downgraded across the FTSE 100. Twelve months ago, the analysts’ consensus suggested earnings per share (EPS) of 5.5p for 2014, but by three months ago that had been revised upwards to 6.9p, alongside a first consensus for 2015 of 7.8p per share.

TSBAnd today, with Lloyds’ progress on the TSB front looking good, we’ve seen further boosts to forecasts — the pundits are now predicting EPS of 7.3p for this year with 8p penciled in for 2015.

Dividends back

Lloyds should be back to paying dividends sooner than many expected, too, with 1.5p per share currently on the cards. On a share price of 74.5p that would provide a yield of only 2% — but it is up 50% on the penny per share being forecast a year ago.

And if forecasts come true, we’ll see the dividend more than doubled to 3.3p per share by the end of 2015, to provide a yield of a very nice 4.4%.

If you’d bought Lloyds shares this time last year, you’d be sitting on a capital gain of 40% now, even though the price has actually slipped back a little since the start of 2014. But even after that, we’re still looking at a forward P/E of only a little over 10, dropping to about 9.5 for 2015.

So, heading back to handsome profits, dividends reinstated and set to grow fast, and the shares still on a lowly P/E rating — it’s no wonder the analysts like Lloyds right now. Fifteen, which is more than half of them, have Lloyds shares rated a Strong Buy, with Hold recommendations making up most of the rest.

Will it be even better?

Individual earnings forecasts are fairly tightly grouped too, although the most recent dividend forecasts are ahead of the pack — if there’s a general uprating in the works, we could even see the expected 2014 dividend rising to 2p per share before much longer.

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Alan does not own any shares in Lloyds or TSB.