Lloyds Share Price Climbs After Surprise Dividend Announcement

Rehabilitation of UK’s biggest bank continues, with rising profits and special dividend paid to shareholders

Emma Simon 25 February, 2016 | 3:52PM
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Shareholders in Lloyds Bank (LLOY) will receive £2 billion pay out –as the state-backed bank revealed profits had grown 5% year on year.

In its full year report Lloyds confirmed profits of £8.1 billion for 2015, up from £7.8 billion the year before.

However, it wasn’t all good news:  there was a slight dip in the statutory pre-tax profits - which fell from £1.8 billion to £1.6 billion. This was largely due to the bank setting aside a further £2 billion to help cover the cost of mis-sold payment protection insurance (PPI) policies. Lloyds said it anticipates that this will cover all future PPI claims.

But despite this setback, the bank said its improved capital position meant it could pay shareholders a special dividend of 0.5 pence per share, on top of an ordinary dividend of 2.25 pence per share.

For the ‘average’ retail shareholder, with 6,000 shares this will equate to a £160 payment.

This pay out is a significant increase on the 0.75 pence dividend paid the year before – the first time in six years that the bank has paid a dividend to its shareholders.

This news helped push the bank’s share price up by 10% in early trading. The market clearly welcomed the continued rehabilitation of Lloyds Bank, which had to be rescued with a £20.5 billion bailout at the height of the financial crisis. 

Morningstar analysts rated Lloyds an undervalued stock with a four-star rating

The Bank That Likes To Say Yes

Laith Khalaf an analyst at Hargreaves Lansdown said: “Lloyds is positioning itself as the bank that likes to say yes to shareholders. A strong capital position means the bank can now throw off excess cash rather than building up its defences.”

Antonio Horta-Osorio, the chief executive of Lloyds Bank said: “We made a strong start in 2015 to the next phase of our strategy and have delivered a robust financial performance, enabling increased dividend payments.”

Public Share Offering

It remains to be seen whether this more positive set of results will persuade the Government to bring forward plans to sell its remaining stake in the bank.

After the bailout the Government held a 43% in the bank, which has now been reduced to just a 9% holding. Plans to sell around £2 billion of these shares to the have been put on hold, following market turbulence.

But experts said this unexpected rise in share price was unlikely to lead to a sudden share sale.  Khalaf added: “It seems unlikely the deal will resurface again before the Brexit vote, given the market volatility we could see as we approach a referendum date.”

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lloyds Banking Group PLC51.75 GBX-2.32Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk