Lloyds Banking Group – A look at analysts’ FY2017 dividend forecasts

Lloyds Dividend forecast 2018

Today, I thought I’d take a brief look at the consensus dividend forecasts for Lloyds Bank (LON: LLOY) (LLOY.L) for FY2017 / FY2018.

After years of poor profitability and significant fines, sentiment towards Lloyds Bank appears to be slowly improving, with even Neil Woodford buying shares in the bank recently.

At face value, the stock looks cheap on a P/E ratio of under 10. Furthermore, after paying out dividends of 2.55p last year, plus a special dividend of 0.50p, the bank is sporting a decent trailing dividend yield of around 4%.

So let’s take a look at the dividend estimates for this year and next, to see what kind of yield Lloyds Bank could potentially offer.

To put the consensus estimates in context, it’s worth looking at the dividend payments Lloyds has paid since it reinstated its dividend in FY2014. The table below shows a breakdown of recent dividends.

Lloyds Dividend

Source: Hargreaves Lansdown

Lloyds Bank dividend forecasts

Current analysts’ forecasts are displayed in the table below.

Lloyds Bank Dividend forecasts

Source: Stockopedia

As it stands, analysts expect the bank to lift its dividend by over 50% this year, to 3.97p. That equates to a dividend yield of an impressive 6.1% at today’s share price. Earnings of 7.85p per share are expected, resulting in a dividend coverage ratio of 2.0. The table also shows that consensus dividend estimates have declined over the last few months, although not by much.

Looking ahead to FY2018, analysts expect Lloyds’ dividend payout to increase a further 13% to 4.50p per share. That level of payout equates to a colossal 6.9% yield at the current share price. Interestingly, earnings are expected to dip a little, and dividend coverage is only expected to be 1.6 times.

Can Lloyds deliver?

If Lloyds can deliver on those estimates, the bank is set to be a cash cow for investors. However, those estimates are just that – estimates. Investors should be aware that there’s absolutely no guarantee that Lloyds will pay that level of dividend.

There are plenty of risks that could affect profitability at Lloyds, including economic uncertainty related to Brexit, a UK property market slowdown, or perhaps even further conduct charges. Investors should be fully aware of these risks, before buying the bank for its dividend.

Disclosure: Edward Sheldon, CFA has no holding 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.

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