Are 5%+ Yielders Lloyds Banking Group PLC & National Grid plc ‘Safe’ Dividend Plays?

Royston Wild looks at the investment prospects of dividend darlings Lloyds Banking Group PLC (LON: LLOY) and National Grid plc (LON: NG).

| 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.

Today I’m looking at the payout prospects of two FTSE-quoted high yielders.

A banking beauty

If China sneezes, the rest of the world catches a cold,” or so the saying goes. When you factor-in recent patchy datasets from the US, combined with the prospect of further monetary tightening across the Pond, then suddenly the outlook for all financial markets becomes a little more gloomy.

British banking behemoth Lloyds (LSE: LLOY) has rapidly de-risked the business through a steady stream of asset divestments. But the knock-on effect of weakness in the world’s two largest economies on the domestic economy could have near-term implications for the bank.

On top of this, Lloyds of course faces the prospect of further financial penalties related to the previous mis-selling of PPI. Indeed, the bank was forced to squirrel away a further £500m to cover these costs during the third quarter, taking total provisions within a whisker of a quite astonishing £14bn.

Still, Lloyds has worked tirelessly to repair its battered balance sheet in the wake of the 2008/2009 financial crisis, and its Simplification restructuring plan saw operating costs fall a further 2% between July and September, to £1.9bn.

And these endeavours are expected to propel the dividend comfortably higher in the years ahead, or so say the City’s army of analysts. Having got shareholder rewards back on the agenda last year, Lloyds is expected to raise a projected dividend of 2.4p per share for 2015 to 3.7p in the current period, yielding a monster 5.1%.

So while Lloyds still faces possible reverberations from the shaking global economy, the company’s decision to focus on its retail operations makes it much less of a risky selection than much of the rest of the banking sector, in my opinion. And with the business sporting a healthy CET1 ratio of 13.7% as of September, I believe Lloyds is in great shape to meet current dividend forecasts.

Supercharge your income flows

And I’m even more optimistic that power play National Grid (LSE: NG) should make good on current dividend projections. The essential nature of electricity provision, combined with a lack of competitive pressures, makes it a robust stock bet regardless of the wider economic climate.

While it’s true that National Grid’s operations certainly put the squeeze on capital levels, the impact of Ofgem’s RIIO price controls are proving highly effective in keeping cash seepage at a minimum.

And the firm’s asset expansion scheme in the UK and US provides its earnings outlook with a further shot in the arm, a factor I believe should continue sending dividends higher in the years ahead.

This view is certainly shared by the number crunchers, and a predicted payment of 43.7p per share for the year to March 2016 (a figure that yields a stonking 4.8%) is anticipated to stomp to 44.7p in the following period. As such National Grid’s yield steps to an even-better 5%.

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.

Royston Wild 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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »