One Reason I Wouldn’t Buy Lloyds Banking Group PLC Today

Today I am looking at why income investors can find more lucrative picks than Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US).

A likely laggard in the dividend stakes

Make no mistake: Lloyds’ transformation since the global recession has been nothing short of remarkable. The business has undertaken extensive cost-cutting and asset sales to bolster the balance sheet and improve earnings efficiency, while improving economic conditions in the UK and an improved focus on the High Street are helping to attract customers through the door.

As a result, the business is expected to return to the black for the first time this year since the 2008/2009 banking crisis hollowed out earnings. And although this turnaround is expected to revive its dividend policy sooner rather than later, I reckon that better income picks can be found elsewhere.

Analysts at Investec expects the bank’s application to the Prudential Regulatory Authority (PRA) to begin shelling out dividends again in the coming months to be successful, and have chalked in a token 1p per share payment for 2014. And with shareholders set to enjoy a full year of dividends from next year, the number crunchers anticipate a 3p total payout in 2015.

At current share prices these projections push the yield from 1.3% for 2014 to 3.9% in 2015. Still, with everything being relative Lloyds is still likely to lag the competition from next year.

Indeed, broker consensus suggests that fellow British banking giants Barclays and Standard Chartered both carry a yield of 4.4% for next year, while HSBC Holdings boasts a bumper readout of 5.2%. And Banco Santander takes them all to the cleaners with a yield of 6.9%.

Of course, Lloyds’ expected return to the dividend is great news for investors, and a steady rise in the firm’s capital buffer could support expectations of stratospheric payout growth in coming years. Investec expects the company’s core tier 1 capital ratio to rise from 10% last year to 11.6% in 2014, before marching to 12.9% and 13.8% in 2015 and 2016 correspondingly.

But if you don’t fancy waiting around until then, I believe that better banking sector stocks can be found for those seeking bumper investment income.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares in Standard Chartered. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.