3 Things to Love About Lloyds Banking Group

LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about Lloyds Banking Group  (LSE: LLOY  ) (NYSE: LYG  ) .

I'll also be asking whether these positive factors make the biggest of Britain's bailed-out banks a good investment today.

Return to profitability
Lloyds has made a bottom-line loss in each of the last three years, the loss for the latest year to December 2012 being 1.3 billion pounds. However, the group posted a profit for the first quarter of 2013, and at its recent AGM, chief executive Antonio Horta-Osorio told shareholders: "We expect us to return to profitability this year."

The improving situation at the bank has seen the shares hit a two-year high of 63 pence during May, 125% up on where they were this time last year. As the break-even price on the taxpayer's 39% stake in the company is 61 pence, Lloyds' directors are starting to talk about the prospect of the government selling its shares and the bank returning to full health as a regular PLC.

Extra capital sorted
There has been more good news for Lloyds' shareholders this month. Back in March, the Bank of England had said the banking sector needed to raise an additional 25 billion pounds of capital to guard against future losses on loans.

The extra capital needed by each bank hasn't been disclosed, but Lloyds said last week it expects to meet the requirements from cash generated within the business and more disposals of non-core assets, "without recourse to further equity issuance."

Dividend moving closer
While the possibility of a dilutive rights issue for shareholders has receded, the prospect of Lloyds resuming dividends has moved closer.

Horta-Osorio told the Sunday Telegraph earlier this year that as the bank's legacy issues are overcome and profitability increases, "it is obvious that Lloyds will be a high dividend-paying stock in the future, as it has been in the past." At the recent AGM, chairman Sir Win Bischoff told shareholders the bank would resume paying dividends "as soon as we are able."

A good investment?
Few investors will have made such a large return in such a short period on a FTSE 100 stock as those brave souls who backed Lloyds when the shares were trading below 25 pence a year ago.

A government sale of the taxpayer's stake in the bank would likely put a brake on share-price momentum in the short term, although much will depend on the appetite of institutions, and the timing and level of the restarted dividend.

I don't expect to see a repeat of last year's gains in the next 12 months. But in the longer term, Lloyds' shares could still outperform the market from their current level.

Investing for the long term is the Foolish way to build your wealth. If you're in the market for quality companies that should stand the test of time, you may wish to read this brand-new Motley Fool report.

You see, the Fool's top analysts have pinpointed a select handful of blue chips as "5 Shares to Retire On." These five high-quality businesses include a utility group "with nearly guaranteed returns," a health care company with "prodigious cash generation" and a retailer trading at "an appealing discount."

You can download this free report right now with no further obligation -- simply click here.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2455548, ~/Articles/ArticleHandler.aspx, 7/23/2014 12:19:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement