Is Lloyds Banking Group PLC A Super Income Stock?

Does Lloyds Banking Group PLC (LON: LLOY) have the right credentials to be classed as a very attractive income play?

| 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.

LLOY

Shares in Lloyds (LSE: LLOY) (NYSE: LYG.US) have enjoyed a scintillating year. They have delivered capital gains of 64% and have easily outpaced the FTSE 100, which has posted gains of just 5%.

Despite this, Lloyds has been unable to deliver profit (on a per share basis) since 2009 and, subsequently, has not paid a dividend over the last five years. However, that’s about to change, with the bank set to return to profitability in 2014 and to begin making dividend payments in the same year. Therefore, is Lloyds all-set to become a super income stock?

Should you invest £1,000 in Sainsbury's right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Sainsbury's made the list?

See the 6 stocks

Although Lloyds is set to start dividend payments later this year, the amounts involved are not particularly exciting. Indeed, Lloyds is forecast to pay just 1.5p in dividends per share during 2014, which equates to a yield of just 1.8%. This is roughly in-line with rates from a typical high-street savings account and slightly below inflation. It is, however, some way behind the FTSE 100’s yield of 3.5%.

However, a payment of 1.5p per share represents just 20% of the profit Lloyds is forecast to deliver in 2014. The bank has stated previously that it is targeting a dividend payout ratio of around 65% by 2016, so expect to see dividends per share increase at a brisk rate between now and then. If, for example, Lloyds were to pay out 65% of 2016’s forecast profits, it would equate to a dividend of around 5p per share. This, in turn, would mean share in Lloyds yield over 6% (assuming the share price does not change) in 2016.

Evidence of the speed at which Lloyds looks set to increase dividend per share payments can be seen in the forecast for 2015. Dividends per share are expected to increase from 1.5p in 2014 to over 3p in 2015, which shows the potential for significant growth in income for investors in Lloyds.

So, while Lloyds may not yet be a super income stock, it looks set to rapidly move towards that status over the next few years. For investors who have the time to wait for a higher yield, Lloyds could prove to be a great income play over the long run.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Peter owns shares in Lloyds.

More on Investing Articles

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »

Investing Articles

2 stocks that could help investors earn £2,516 of passive income per year from a £20k ISA

Our writer selects two high-yield UK dividend shares for investors to consider that could turbocharge a passive income portfolio.

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Why I think FTSE 100 dividend shares could build a better second income than the S&P 500

US tech stocks are hot, but when aiming for a sustainable second income later in life, our writer prefers dividend-paying…

Read more »

Investing Articles

2 blue-chip FTSE 100 shares Hargreaves Lansdown investors have been buying in the market sell-off

When global markets were in meltdown mode, Hargreaves Lansdown investors recently piled into these two well-known FTSE 100 names.

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Investors considering £10,000 of Sainsbury’s shares could one day make £2,590 a year in dividend income!

Sainsbury’s shares deliver a yield significantly over the FTSE 100’s 3.8% average and they also look very undervalued against their…

Read more »

Trader on video call from his home office
Investing Articles

After a 12% drop in a month, is it finally worth me buying this rare FTSE technology stock?

A scarcity of technology shares in the FTSE 100 pushed the prices of many beyond their fair value, I think.…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

How can I protect my 2025 Stocks and Shares ISA against tariff war pain?

Just when we were looking forward to a new Stocks and Shares ISA allowance for 2025-26, the world is thrust…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

As WH Smith shares rise despite its H1 loss, I still think they’re good value

Shares in retail companies have been having a tough time recently, but does the latest FTSE 250 stock to report…

Read more »