View the article online at http://citywire.co.uk/money/article/a884755
Lloyds surges as dividend bonanza eclipses PPI hit
Lloyds underlines its revival as a solid dividend payer with a full-year payout of 2.75p, including a 0.5p 'special'.
Shares in Lloyds (LLOY) have raced higher after the bank unveiled a big increase in dividend payouts despite taking a further £2.1 billion hit over compensation for payment protection insurance (PPI) mis-selling.
Lloyds has announced a final dividend for 2015 of 1.5p, taking the full-year payout to 2.25p, with a further 0.5p special dividend on top. That marks a huge increase on the 0.75p paid in 2014, as Lloyds returned to the dividend register for the first time since the financial crisis.
Including the special payout, Lloyds has become the ninth biggest FTSE 100 dividend payer in cash terms for 2015.
Shares in the bank raced 9.7% higher to 68.2p on the news, wiping out much of the losses the shares have suffered since the turn of the year as a banking sell-off weighed.
News of the dividends softened the blow of a £2.1 billion further provision for compensation to customers mis-sold payment protection insurance, taking the full-year cost to £4 billion.
The bank meanwhile reported a 5% jump in full-year profits to £8.1 billion, well ahead of the £6.4 billion analysts had been expecting.
'Lloyds is positioning itself as the bank that likes to say "yes" to shareholders,' said Laith Khalaf, senior analyst at Hargreaves Lansdown.
'A strong capital position means the bank can now throw off excess cash rather than building up its defences. Lloyds is the simplest of the UK banks as its activities are purely focused on UK retail and business lending, with no roulette wheels spinning in the background.'
Russ Mould, investment director at AJ Bell, said investors would now be focusing on dividend payments for 2016, with analysts expecting a 3.7p full-year payout, a yield of 5.4% on today's share price, placing the bank in the top 20 FTSE 100 yielders.
'It would also mean the stock is currently expected to be the seventh largest-dividend paying stock for 2016, in cash terms,' said Mould.
A resurgence in fortunes for the bank's shares could also prompt chancellor George Osborne to review plans for a sell-off of the government's remaining stake in the bank to private investors.
A sale had been planned to take place this spring, but was postponed last month due to the turbulence that has hit stock markets. Even with today's jump in the shares, they are still trading below the 74p the government paid when bailing out the bank at the height of the financial crisis.
'If Lloyds can build its credentials as a reliable dividend-paying stock, this could help chancellor George Osborne place the government's remaining 9% stake, especially if the bank can keep a lid on further PPI claims and bad loan losses to manageable levels,' said Mould.
But Khalaf said a relaunch of the share sale was unlikely to be imminent. 'It now seems unlikely the deal will resurface again before the Brexit vote, given the market volatility we could see as we approach the referendum date,' he said.
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by Daniel Grote on Sep 26, 2016 at 09:48