When Lloyds Banking Group (LON: LLOY) released its FY2017 results recently there were no doubt a few dividend investors, myself included, that were a little disappointed by the dividend that was declared.
Lloyds declared a full-year dividend of 3.05p per share for 2017, which was significantly below analysts’ estimates.
When I looked at dividend forecasts for the UK banks back in January, the consensus estimate for Lloyds’ 2017 payout was 4.19p per share. This means that analysts were off by nearly 30%.
Instead of paying out a massive cash distribution, Lloyds decided to direct cash towards a £1bn share buyback.
As a result of the lower-than-expected payout for 2017, analysts have been quick to adjust their dividend forecasts for 2018.
And unfortunately, it’s not good news for income investors. Estimates for Lloyds’ 2018 and 2019 dividend payouts have been downgraded dramatically over the last month.
Here’s a look at the latest estimates.
Lloyds 2018 dividend forecast
Over the last month, City analysts have downgraded their estimates for Lloyds’ 2018 dividend by a huge 17%.
According to Stockopedia, the consensus estimate is now 3.82p per share, an increase of 25% on the 2017 payout. This figure has been downgraded from 4.59p per share a month ago.
At the current share price of 67.5p, 3.82p per share equates to a yield of 5.7%.
Lloyds 2019 dividend forecast
Looking further out, analysts expect a payout of 3.95p per share for 2019. Like the 2018 estimate, this figure has also been heavily downgraded over the last month. A month ago, the estimate was 4.84p per share. That’s a chunky downgrade.
Interestingly, it’s worth noting that earnings forecasts for both 2018 and 2019 have actually been increased over the last month.
Analysts have raised their EPS forecasts for Lloyds by 5% and 7% for 2018 and 2019 respectively, in this time.
So it doesn’t appear that the dividend downgrades are an issue with profitability. Instead, it’s more an issue of capital allocation.
The recent dividend forecast downgrades will come as a disappointment to those who thought Lloyds could be a cash cow in 2018 and 2019.
However, the potential yields on offer are still attractive. A prospective yield of 5.7% should not be ignored in the current low-interest rate environment.
An important point to note though, is that we can’t always rely on analysts’ estimates. Sometimes, they are way off the mark. This is especially true in relation to companies that don’t have long-term dividend track records.
It’s also worth noting that the forecasts for 2018 and 2019 could continue to fall. Therefore, they shouldn’t be relied upon.
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.