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With leading bank lloyds (LSE: LLOY) Set to announce its full-year results to the City tomorrow, I’ve been considering whether now might be a good time to buy the shares for my portfolio again. I sold last year, concerned about the broader economic environment and the fact that the bank’s dividend had not yet returned to pre-pandemic levels.
Could the Lloyds dividend forecast be enough to tempt me back into the stock?
Lloyds Dividend Forecast
Last year the final dividend grew 230%. However, I don’t expect anything like the same increasing order this time.
In the interim stage of this year, the year-on-year increase was 19%. While that’s far less than a 230% jump, it’s still substantial. My Lloyds dividend forecast for tomorrow is a full-year rise of around that 19% level, or perhaps a bit more. That would bring the final dividend to 1.6 pence per share.
Before the pandemic, the final dividend accounted for about two-thirds of the total for the year. With an interim dividend last year of 0.8 pence, a final payment of 1.6 pence would restore this historic split between interim payments and final payments.
If the full-year dividend comes in at 2.4p, it would mean that Lloyds shares at today’s price offer an expected return of around 4.7%.
Slow dividend recovery
However, a full-year dividend forecast for Lloyds of 2.4 pence per share would leave the payout below where it was before the pandemic.
The interim dividend was just 71% of its 2019 equivalent. Between 2019 and last year, however, earnings per share for the six-month period in question grew 37%. Based on that, I would have expected the interim dividend now to be noticeably higher than it was in 2019, when in fact it is significantly lower.
additional capital return
It’s not that Lloyds doesn’t have a lot of money on hand. In fact, the dark horse has been using up to £2bn of additional cash to buy back its own shares. I would not be surprised to see more buybacks tomorrow. The business is the UK’s leading mortgage lender and has a strong brand name. Both of these things could help you keep making big profits.
My inference is that the bank’s management simply does not prioritize returning the dividend to its pre-pandemic level. You’ve had plenty of cash with which you could do it, but so far you’ve chosen not to.
There is also the possibility of a special dividend. Lloyds could distribute part of its excess capital with a single dividend. But with management’s attitude toward dividends thus far and the risk of rising loan defaults hurting earnings, I don’t expect such a move.
my movement
Over the past year, Lloyds’ share price has finally moved sideways: that’s almost exactly where it started. Since the share buybacks have led to fewer shares outstanding, that means the bank’s overall valuation has actually fallen in that period.
While the dividend yield is attractive, I think the flat share price indicates ongoing investor concern about what a weak economy could mean for the bank’s earnings. I myself have such concerns. Given that, the Lloyds dividend forecast is not enough to convince me. So I’m not going to buy.
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