Eyes Down For Lloyds Banking Group PLC’s Results

Lloyds Banking Group PLC (LON: LLOY) is set to resume paying dividends in 2014.

| 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.

LloydsLloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) shareholders got a bit of good news this week when the bailed-out bank announced that it is set to resume paying dividends now that its capital position has significantly strengthened — the bank says it achieved a 2.12% net interest margin in 2013 with core loan growth of 3%, and estimated its fully loaded common equity tier 1 ratio for December at 10.3%.

Cash in 2014

Lloyds says it will apply to the Prudential Regulatory Authority to restart dividends in the second half of 2014, and intends to progressively build them back up to around 50% of sustainable earnings.

That’s not going to provide any income for the year just ended in December 2013, expected on Thursday 13 February, but we also had good news for those who are eagerly awaiting those results — Lloyds announced an underlying profit of £6.2bn for 2013, which is more than twice the previous year’s achievement and well ahead of City expectations.

Ongoing liabilities

There is, however, still a fair old wedge of cash being set aside to cover Lloyds’ past misbehaviour, with the amount based on the success rate customers are enjoying over their claims. There’s a £1.8bn provision in the fourth quarter for payment protection insurance mis-selling, and a further £130m set aside to cover the sale of inappropriate interest rate hedging products to businesses.

Back to the market

But with this apparent return to good health, Lloyds has also started the process for returning to full private ownership through a future sale of shares to the public.

Prior to this update, we had an analysts’ consensus of around 5p in earnings per share (EPS). We can’t really say yet how that £6.2bn underlying profit will translate into EPS, but it seems pretty certain that 5p is now an underestimate.

On the current share price of 80p, that 5p did indicate a price-to-earnings ratio (P/E) of about 15.7, but the real figure will be less than that now. And it’s set to fall further over the next two years as profits continue to rise to a sustainable longer-term level — pre-update estimates for 2015 suggested a P/E as low as 10.3.

Yields

What will the dividend yield? Well, some had been predicting a small payout for 2013, though that’s not going to happen now. But if the rest of the consensus proves accurate, we could be seeing yields of a little under 3% this year and better than 4.5% in 2015 — and that’s back to serious income territory.

Whatever else happens, it looks like 2014 is going to be an eventful year for Lloyds — and next week’s results are going to be well worth a little scrutiny.

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.

> Alan doesn't own any shares in Lloyds.

More on Investing Articles

Happy young female stock-picker in a cafe
Investing Articles

Should I start considering US stocks as a second income opportunity?

As tariff fears hit the S&P 500, should Stephen Wright be looking across the Atlantic for the best shares to…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

2 top exchange-traded funds (ETFs) to consider as stock markets dive

A lump sum investment in these rock-solid funds could help investors weather the current storm on global stock markets.

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

This recovering FTSE 100 dividend share has a 9.5% yield!

M&G is a struggling UK dividend share that's begun to show signs of a moderate recovery this year. But is…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Here’s what £10,000 invested in Tesla shares yesterday is worth today

Harvey Jones says plunging Tesla shares are either a magnificent buying opportunity or a terrifying gamble. As ever with Elon…

Read more »

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

Down 25% in a week! Is this beaten-down FTSE growth stock suddenly an unmissable buy to consider?

The Melrose share price caught the attention of Harvey Jones following a torrid week. Is this his chance to buy…

Read more »

Investing Articles

£10,000 invested in Scottish Mortgage shares 2 years ago is now worth…

Scottish Mortgage shares have rebounded from their post-pandemic lows. Dr James Fox explains what’s behind the surge and where they…

Read more »

Investing Articles

As US stocks plummet amid Trumpian uncertainty, these could be standout investment opportunities to consider

US stocks, notably growth-oriented companies and consumer discretionary businesses, have slumped as Trump keeps the market guessing.

Read more »

Investing Articles

This FTSE 100 stock looks undervalued to me. But by how much?

Our writer takes a look at a FTSE 100 stock that’s popular on one particular investment platform. But he reckons…

Read more »