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1.5 Reasons Why Lloyds Banking Group plc Is A Stunning Buy

In this article I am looking at why Lloyds Banking Group’s (LSE: LLOY) (NYSE: LYG.US) dividend outlook is poised to rapidly improve.

Dividends poised to drive higher

In view of Lloyds’ staggeringly-successful transformation package, City brokers are broadly in agreement that the firm is on the cusp of shelling out meaty shareholder dividends once again. Indeed, broker Investec expects the bank to get the ball rolling with a 1.5p per share total payout in 2014, and anticipates steady earnings growth to propel dividends comfortably higher thereafter.

Lloyds announced back in February that it was on course to launch discussions with regulators during the latter half of 2014 ‘to restart dividend payments at a modest level and to deliver progressive and sustainable payments to shareholders thereafter.‘ The company has of course failed to produce a dividend since its part-nationalisation back in the aftermath of the 2008/2009 financial crisis.

In another promising omen for income investors, the institution reported this month that underlying profit improved 22% to LLOY£1.8bn during January-March, helped by net interest income surging 10% to £2.8bn. In addition, Lloyds’ ongoing cost-cutting drive — expenses dropped 5% during the period to £3bn — and a colossal 57% fall in impairment charges, down to £400m, also boosted the first-quarter bottom line.

The bank’s tremendous turnaround success is anticipated to continue well into the future, and Investec expects Lloyds to swing from losses per share of 1.2p per share in 2013 to earnings of 4.7p this year. Earnings are then predicted to march to 6.9p in 2015 and 7.9p in 2016.

Against this backdrop, Lloyds not only looks a great bet to get dividends rolling again sooner rather than later, but also to reward shareholders with increasingly-explosive payouts. Indeed, the broker expects the firm to raise 2014’s dividend to 3p per share in 2015 before increasing it to 4.5p the following year.

These attractive growth rates drive the dividend yield from 2% this year — some way below a prospective average of 3.1% for the complete banking sector — to 4.1% and 6.1% in 2015 and 2016 correspondingly. In my opinion Lloyds is fantastic bet to deliver stunning earnings and dividend expansion well into the future.

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Royston does not own shares in Lloyds Banking Group.