On 27th February, after a six and a half year hiatus, taxpayer-backed Lloyds is likely to announce it’s return to dividend payments when it releases it’s annual results. Permission, however, must first be won from the Bank of England’s Prudential Regulatory Authority Arm who are poised to give a verdict this week after several months of exchange between the two. On Tuesday, Lloyds narrowly passed the Bank of England’s “stress test” where it was found to hold capital of 5% of risk-weighted assets under the test scenarios, a mere 0.5% over the pass mark of 4.5%. Where many analysts were expecting Lloyds to be vulnerable here due to it holding the biggest residential mortgage book of any UK lender, this positive result has gone a long way in strengthening it’s case for a modest pay out for the 2014 financial year, with City analysts predicting dividends of 1p per share.
After an extensive clean-up operation at the hands of Chief Executive Antonio Horta-Osorio, which has seen the bank return to profitability, Lloyds now feels it is financially stable enough to start paying dividends again. Despite the double blow of having to part ways with it’s TSB arm last year, which formed part of the conditions for the 2008 £20.5 billion bailout, and a £12billion PPI misselling bill, Lloyds is expected to announce a 3% increase in underlying profits to £6.4billion. Good news for investors, who are set to receive a total of £713.7million from the lender if predictions hold true.
One man to whom this news could come at an extremely handy time is Chancellor George Osbourne, who could not only add an extra £187 million windfall to his budget when he announces it next month, but could also expect the remaining 24.9% share that the government still hold to turn a tidy profit when it comes to sell. With the general election looming, this news would present another arrow in the quiver of a Conservative party who love to talk about the economy.
A minority of analysts, however, still believe that the regulator will be deterred by the closeness of the stress test results and permission will not be granted.
“We believe that expectations that Lloyds will commence a dividend this year are misplaced”
Joseph Dickerson, Jefferies Investment Bank Analyst
It remains to be seen which way the regulator will sway, however I believe that after a long recovery Lloyds is finally back at a point where dividends are again a viable option and that it’s about time that the long-suffering shareholders started to see a glimpse of the dividends that made Lloyds one of the most widely held shares prior to 2008.
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