Investment Insider: Is there any reason for you to bank on Lloyds?
There are three criteria for buying shares ... and it fails all of them
Saturday 08 February 2014
There are three possible reasons for buying a share.
Firstly, you might believe that the share could generate a suitable income both now and in the future. In other words, it could have an attractive dividend yield, which you think might also grow over the years.
Secondly, you might believe the company could grow its profits substantially over time. Or put another way, you believe it might be a good growth stock that has the potential to outperform the overall market.
The third reason may simply be because you think the share has been overlooked and undervalued by the market. Consequently, you believe it could be a good speculative bet, especially if it looks attractive to a predator too.
Exactly which one of the three categories would Lloyds Banking Group fit into?
Lloyds Banking Group is not an income share. In fact, it hasn't paid a penny in dividends since it was part-nationalised by the UK government in 2008.
The state still owns around a third of the bank, even after the Government sold £3.2 billion worth of stock to institutional investors last September.
But there are strong hints that Lloyds could soon resume payouts to investors. The bank said it expects to apply in the second half of the year to restart dividend payments. Additionally, Lloyds expects to deliver progressive and sustainable payments to investors thereafter.
At the moment, Lloyds is pencilled in for a dividend of 1p per share this year and 2p the year after. That would imply a prospective yield of 2.5 per cent. By comparison, Barclays is already yielding 4.5 per cent and Standard Chartered is currently yielding 4.6 per cent. HSBC investors are enjoying a dividend payout of 5.5 per cent.
But given Lloyds' pledge of a progressive dividend policy, it could ratchet up its dividend payout quickly, which could bring it more in line with its peers. But that is a big "if".
Lloyds Banking Group does not show any of the characteristics investors would classify as a fast-growing company. It has never grown at break-neck pace and there is little reason to suppose it might do so now.
Lloyds is a domestic bank focussed primarily on personal and business customers. Its expertise lies in retail, commercial and corporate banking. It also sells general and life insurance, pensions and investments. None of those can be considered high-growth products.
Additionally, Lloyds has little in the way of international exposure, unlike Standard Chartered, heavily exposed to fast-growing Asia. Its profits have grown at a compound rate of around 8 per cent a year. Meanwhile, HSBC is exposed to Asia, the Middle East, North America and also Latin America. Despite a hiccup in profits in 2009, it has grown them at around 6 per cent a year.
The final reason for buying a share is that it could simply be a speculative bet. Can Lloyds recover from its disastrous merger with HBOS and its exposure to the UK housing market, or from its Payment Protection Insurance debacle, which has cost the bank almost £10bn?
Whichever way you look at Lloyds Banking, there don't appear to be compelling reasons that would make it attractive.
David Kuo is director of fool.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
- 4 Queen's first tweet: Reply telling Her Majesty to 'f*** off' broadcast on BBC News
- 5 #AskNigelFarage: Twitter starts hilarious Q&A for Ukip leader
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Tony Blair 'says Ed Miliband will lose 2015 general election'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Putin: The US is to blame for almost all the world's major conflicts
Poppy Appeal 2014: This is why I won't be wearing a red poppy this year
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village