Will Lloyds Banking Group PLC Finally Be Allowed To Restart Dividend Payments This Year?

Lloyds Banking Group PLC (LON: LLOY) wants to restart dividend payments again this year but will regulators allow it?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Lloyds (LSE: LLOY) (NYSE: LYG.US) has been trying to restart dividend payments to investors for some time now, but so far the bank has failed in its attempts. 

However, Lloyds is planning to ask regulators once again for permission to restart its dividend payments this month. Management hopes that regulators will grant the bank permission to restart dividends in time for the release of its fourth quarter results, scheduled for the end of this month. 

And it seems that the chance of Lloyds getting the green light from regulators is high. Over the past 12 months the bank has proven that it is no longer dependent on state aid by passing several stringent stress tests conducted by both the Bank of England and the European Central Bank.

Income vs growth 

Lloyds has shown regulators that it can stand on its own two feet, but this doesn’t mean that the bank will be allow to restart dividends this year. Regulators may want further proof that Lloyds is financially stable and able to support itself in the event of another financial crisis. This could mean additional stress testing and asset sales.

Still, if Lloyds does get the go-ahead to restart dividends, income investors will be well rewarded. City analysts believe that Lloyds’ dividend yield will hit 3.8% this year, and if regulators allow it then the bank’s dividend yield could hit 5.6% by 2016 — making Lloyds one of the FTSE 100‘s most attractive income investments.

That being said, there’s a chance that Lloyds won’t be allowed to restart dividend payments this year. But this isn’t bad news.

You see, Lloyds is now returning to growth and although investors may have to forgo a dividend this year, the bank’s rising share price should more than offset the lost income.

For example, according to City figures Lloyds is currently trading at a forward P/E of 9.3 for 2015. Analysts believe that Lloyds’ earnings per share are set to expand by 4% this year and a further 4% next year. On that basis, the bank is trading at a 2016 P/E of 8.9.

These figures indicate that Lloyds is severely undervalued in comparison to its peers. In particular, the banking sector average P/E stands at 24.7. If Lloyds’ valuation were to move in line to that of its peers, the bank’s shares could be worth up to 210p each by 2016 — a gain of 180% from current levels.

Many investors would be more than happy to pass up a token dividend payout for this kind of capital growth. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »