Why Lloyds Banking Group Stock Jumped Today

A surprise dividend increase sent shares flying higher.

Jordan Wathen
Jordan Wathen
Feb 25, 2016 at 2:53PM
Financials

What: Shares of Lloyds Banking Group (NYSE:LYG) jumped nearly 14% today as of 2:10 p.m. ET as the bank surprised investors with a big dividend increase.

So what: Lloyds Banking Group announced that it would triple its ordinary dividend to 2.25 pence per share, with a special dividend of 0.5 pence per share. For the shares traded in the United States, that amounts to a dividend of 9 pence ($0.13) plus a special dividend of about 2 pence ($0.04) for the fourth quarter of 2015.

The shares listed on the New York Stock Exchange are ADRs, which are effectively the equivalent of four shares listed in London.

Now what: Investors see the increased dividend as a sign that Lloyd's can maintain its capital position, fund provisions for legal claims, and return capital to shareholders.

The company largely met analyst expectations this quarter even after a 2.1 billion pound provision for customer compensation stemming from the sale of "payment protection insurance" to its customers. It expanded the scope of mis-sold policies to 1.7 million cases, which led to the increased provisions this quarter.

Investors see a bigger dividend as an encouraging sign that outsized legal expenses may be in the rearview mirror.