Lloyds Banking Group (LON: LLOY) released FY2017 results this week.
Let’s take a look at the implications for dividend investors.
The results were a mixed bag, in my view.
Underlying profit was 8% higher, at £8.5bn, and profit before tax rose 24% to £5.3bn. Earnings per share came in at 4.4p. That shows Lloyds is making progress.
Chief Executive Antonio Horta-Osorio commented: “2017 has been a landmark year in which the Group has made significant strategic progress.”
However, on the downside, PPI charges refused to go away, with provisions rising from £1bn last year to £1.7bn.
Lloyds raised its dividend by 20%, declaring a full-year dividend of 3.05p per share.
While a 20% dividend hike is a strong increase, I think there will be a few dividend investors, myself included, that are disappointed by that payout. Analysts were anticipating a much higher payout of around 4.2p per share.
Unlike previous years, there was no special dividend.
Instead, Lloyds announced a £1bn share buyback.
Share buybacks are not a bad thing. They have the ability to boost earnings and they also signal that management believe the company’s shares are cheap.
However, there’s no denying the fact that most dividend investors would prefer a higher dividend payment over a buyback.
Ultimately, cash payments are what it’s all about. So in that regard, the lower than expected dividend payout combined with the buyback is a little disappointing.
This highlights the danger of relying on analysts’ estimates. In this case, the forecasts were quite a way off. Although, with Lloyds’ recent dividend track record being quite short, there was always the potential for the forecasts to be off.
Still, the dividend of 3.05p per share is a yield of 4.4% at the current share price, which is not too bad at all.
On a forward P/E of under 10, and with further dividend growth on the cards for FY2018, Lloyds remains a compelling dividend stock opportunity, in my opinion.
Disclosure: Edward Sheldon, CFA owns shares in Lloyds Banking Group.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.