The Motley Fool

The Lloyds share price drops, despite a dividend comeback

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

Despite releasing a solid set of half-year results, Lloyds Banking Group (LSE: LLOY) shares slipped on Thursday. Hence, the Lloyds share price still lurks below its 2021 high hit two months ago.

The Lloyds share price lifts, then dips

On Thursday morning, the Lloyds share price briefly rose, peaking at 47.9p. However, the stock later lost its shine to close down 0.62p (-1.3%) at 46.16p. This was in spite of the bank raising its full-year targets as the UK economic outlook improves.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I see two sweet spots in the £32.8bn bank’s latest results. First, Lloyds is a giant in UK mortgages, accounting for roughly one in five (20%) home loans. With house prices hitting record highs, Lloyds is a winner from the booming housing market. The UK’s largest retail lender unveiled a £2bn pre-tax profit for Q2/21. This was £0.8bn — two-thirds (+66.7%) — higher than the average analyst forecast of £1.2bn. In Q2/20, the bank lost £676m, making this a huge turnaround. However, given the housing market is cooling, this may explain why the Lloyds share price declined today.

Second, Lloyds set aside huge sums in 2020 against expected credit impairments (loan losses). As UK vaccination numbers soar and the economy grows, the bank can free up some reserves. Lloyds released £333m of loan-loss reserves and this sum drops straight into the bank’s bottom line. If Covid-19 infections keep falling and UK growth continues, then more impairments could be reversed. Again, this might provide future boosts to the Lloyds share price.

Lloyds gets stronger

Two more improving metrics might also support the Lloyds share price. First, the bank’s return on tangible equity (ROTE) soared to 24.4% in Q2/21, versus 13.9% in Q1/21 and 5.9% in Q4/20. Thus, the group is making substantially higher returns from its asset base. Second, Lloyds’ common equity tier 1 (CET1) ratio — a key measure of its financial strength — increased to 16.7% at the end of June, versus 16.2% at the end of 2020 and 14.6% in mid-2020. This is well ahead of the bank’s 12.5% target and the regulatory minimum CET1 of 11%.

These improved results allowed Lloyds to restore its cash dividend, cancelled on the bank regulator’s orders last year. The interim dividend will be 0.67p, worth roughly £475m across nearly 71bn shares. Nevertheless, this is a long way from the total dividend of 3.21p paid for the 2018 financial year. Perhaps investors were hoping for a higher base dividend, with selling contributing to the decline in the Lloyds share price today?

I like the look of Lloyds

Looking forward, Lloyds expects a softer second half for 2021. It expect its full-year ROTE to be around 10%, while it anticipates a NIM (net interest margin; a measure of lending profitability) of around 2.5%. However, staff costs are expected to rise after the return of employee bonuses, cancelled in 2020 due to the pandemic.

Meanwhile, the Lloyds share price lies 8.7% below its 52-week high of 50.56p, hit on 1 June. Although the Lloyds share price is up more than a quarter (+26.7%) in 2021, there may be more to come. I don’t own Lloyds stock currently, but I’d buy LLOY at the current price as a pure recovery play. However, if the Delta and other Covid-19 variants continue to cause problems globally, or growth reverses, then I’d hesitate to invest in Lloyds and other British banks!

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.