Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1011688

Lloyds' dividend hopes rise as bank doubles profits

Lloyds Banking Group has defied Brexit fears on the economy with first quarter pre-tax profits nearly doubling despite having to set aside more compensation for customers.

 
Lloyds' dividend hopes rise as bank doubles profits

(Update) Shares in Lloyds Banking Group (LLOY) jumped today as first quarter results revealed improved margins and financial strength that bodes well for the bank's ability to up its dividends. 

Lloyds saw a near doubling in pre-tax profits in the first three months of the year with statutory profit before tax of  £1.3 billion up 99% compared to a year ago.

This was despite the bank setting aside £550 million for compensation to business customers defrauded by its HBOS Reading office and a further provision for payment protection insurance (PPI) mis-selling. 

Underlying profit growth was more modest, up just 1% to £2.1 billion, but was better than expected in the aftermath of last summer's Brexit vote. The shares gained 2.5%, or 1.7p, to 69p.

Net income rose 1% from the previous quarter to £4.2 billion as the bank reported a cut in costs and a fall in impairment charges on bad loans. Lloyds said it was on track to deliver £1.4 billion of savings from its simplification programme this year. 

Investors were also cheered to see an increase in the net interest margin (NIM) Lloyds makes between its savings and lending rates, which rose to 2.8% from 2.74% a year ago.

Joseph Dickerson, equity analyst at Jefferies International, maintained his  'buy' stance on the shares with a 86p price target. 'A central part of our investment thesis revolves around the bank's ability to surprise on net interest income - both in terms of a better NIM and a growing earning asset base.' 

Lloyds is now one of the best capitalised banks in Europe with a common equity tier 1 ratio - a measure of financial strength - now hitting 14.3%.

Hargreaves Lansdown fund manager Steve Clayton said Lloyds' ability to generate capital meant shareholders could be in line for special dividends. 

'On the ordinary dividend alone, Lloyds yields around 3.9% and special dividends later this year could take that higher still. If Lloyds can bring revenues back into growth then the prospects could improve further,' said the manager of the HL Select UK Income Shares fund. 

Michelle McGrade, chief investment officer of stockbroker TD Direct Investing, believed Lloyds could be a 'dividend cash cow' in future. 'If interest rates rise and the mortgage market remains stable, this “bottom draw” share should continue to be a dependable dividend payer for years to come, and investors stand to benefit from buying it for the long-term and letting the power of compounding work its magic.'

The government is set to sell its remaining 2% stake in Lloyds in the next few months, eights years after it bailed out the lender for £20.3 billion after the bank attempted to rescue rival HBOS.

Chief executive António Horta-Osório said: ‘These results continue to demonstrate the strength of our customer focused, simple and low risk business model and our ability to respond to a challenging operating environment.’

7 comments so far. Why not have your say?

Doug Sammons

Apr 27, 2017 at 14:53

I think AH-O should leave Lloyds...... and go to RBS

report this

Robert Thornton

Apr 27, 2017 at 15:04

What a shame that Lloyds did not listen to our warnings all those years ago about the mis-selling of PPI and related products. Those of us working for them in Financial Services at that time tried hard to make them see that it was bad business practice and really bad for the customers who were duped into paying far too much for something they likely didn't need. Just think what the share price could have been now if they hadn't been so greedy.

And the "bank" employees didn't believe we offered "Best Practice" !!!

report this

Graham Barlow

Apr 28, 2017 at 10:03

After defying shareholder pressure except big shareholders in RBS, Lloyds went ahead and bought the bankrupt Bank of Scot/ Halifax without due diligence. An unheard of piece of banking hubris and political skullduggery where the shareholders were sacrificed and their regular dividends disappeared for the next 8 years. It would go a long way to now try and compensate the small shareholders who were robbed blind.

report this

Robert Thornton

Apr 28, 2017 at 13:10

I agree with GB comments but I blame Gordon Brown who I think must have bribed the board to take such a huge risk. Obviously, whatever the bribe was, it did not materialise!

report this

Jaymak

Apr 28, 2017 at 15:59

Don't disagree with comment re Gordon Brown. I do think that re HBOS the Lloyds Board had "pistol held to their heads".

report this

Shaka198

Apr 29, 2017 at 11:39

Crazy decision to buy BOS when in serious trouble, why not let it go down and then pick up the pieces cheaply as a favour for the Govt and depositors. I guess easy with hindsight, but which responsible Board buys a business without due diligence.

Agree selling PPI was always dubious business.

report this

Mike R

Apr 29, 2017 at 11:58

The government underlined PPI as it supported pumping money into consumer spending. Also of course allowing money to be pumped into the ambulance chasing coffers in large quantities.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the shares

  • Lloyds Banking Group PLC (LLOY)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Steve Clayton
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet