Market disappointed at Lloyds divi delay

Investors have expressed disappointment over Lloyds announcement that it is unlikely to reinstate its dividend policy before the second half of the year.

Market disappointed at Lloyds divi delay


In a precursor to its full year results set for release on 13 February, a statement to the London Stock Exchange on Monday morning (3 February) by Lloyds Banking Group said it expected to report "substantial progress on its strategic plan".

It laid out a group underlying profit of £6.2bn for 2013 – ahead of analyst consensus expectations and more than double its profit in 2012, a full year net interest margin of 2.12 per cent and core loan growth of 3 per cent.

"The group also expects to report a small statutory profit before tax for the 2013 financial year, and an estimated pro-forma fully loaded common equity tier 1 ratio of 10.3 per cent at 31 December 2013, in line with guidance."

Lloyds allocated a £1.8bn provision in the fourth quarter relating to legacy payment protection insurance, in addition to £130m for the sale of interest rate hedging products to SMEs.

Providing a return to sustainable profitability and with no major unexpected changes to the business outlook or regulatory requirements, Lloyds will be applying to the Prudential Regulatory Authority in H2 to reinstate its dividend payments, commencing at a "modest" level, with these set to move to a minimum payout ratio of 50 per cent of sustainable earnings over the medium term.

Elsewhere, the board has confirmed it will no longer issue ordinary shares to fund discretionary payments on hybrid capital securities.

"The group can also confirm that, following the statements made by the Chancellor in his Mansion House speech and in the Autumn Statement, preparatory work including the preparation of certain documents required for a possible future sale of shares in Lloyds Banking Group to the public, has commenced," the statement said.

Group chief executive António Horta-Osório added: "Our significant progress in delivering sustainable improvements in our capital position and our profitability, despite legacy issues, is testament to the strength of our business model and the commitment of our people, and has enabled the UK government to start to return the bank to full private ownership.

"We expect to apply in the second half of 2014 to restart dividend payments and to deliver progressive and sustainable payments to shareholders thereafter. This will be another important step in our journey to rebuild trust and confidence in our group.

Rathbones CIO Julian Chillingworth said: "My view is that it was always going to be unlikely one would get a dividend from Lloyds until the second half of this year, so no huge surprises there, although some disappointment for the bulls.

"Key to the figures was more provision for mis-selling, but there's better overall profitability, and Tier 1 is over 10 per cent. The stock looks reasonable in the medium term but with some short-term disappointment."

Ashcourt Rowan's Stephen Walker said any surprise was negative.  While his group is not an active investor in Lloyds, the head of equity research and market strategy said he felt for certain equity income investors who might have been building a position in anticipation of a dividend to then be disappointed.

“We've not been that keen on banks full stop, although we do like HSBC. The story there is a lot less uncertain, with a decent dividend payout. Why wait for Lloyds to get up to its target of a 50 per cent payout when HSBC is already there? There are much clearer, more obvious income stories available."

Charles Stanley chief investment commentator Garry White said investors hoping for this to happen earlier would clearly be disappointed and he failed to see Lloyds shares as a viable prospect for income.

"I think if you are going to look at investing in the banks, I'd suggest buying them now and holding onto them for 15 years or so. They're not one to look at if you're seeking income now. If you want financial exposure, look to the insurance companies, such as Aviva," he concluded.


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