You are here: Home - Investing - Experienced Investor - News -

Government to sell £2bn of Lloyds shares to public at discounted rate

0
Written by:
05/10/2015
The government has announced it will sell Lloyds Banking Group shares to the public at a discounted price next spring.

As part of its plans to fully exit from its Lloyds shareholding in the coming months, the Treasury said at least £2bn of shares will be sold to retail investors.

Members of the public will be offered a discount of 5% of the market price, with a bonus share for every 10 shares for those who hold their investment for more than a year.

The value of the bonus share incentive will be capped at £200 per investor. People applying for investments of less than £1,000 will be prioritised.

Potential investors can pre-register and receive email updates about the sale at www.gov.uk/lloydsshares.

Lloyds shares for income?

Experts say the deal announced today looks attractive to investors.

“Wild horses couldn’t drag investors away from this share sale, especially given the discounted price and the dividend stream Lloyds is expected to start churning out,” said Laith Khalaf, senior analyst at Hargreaves Lansdown

“Pensioners in particular are likely to respond to a trusted high street brand with a decent yield when interest rates are so low.”

Lloyds used to be a dividend giant in the FTSE 100 before the financial crisis but has recently started to pay a dividend again and is expected to yield 3.5% this year and 5% in 2016.

Khalaf notes that looks “very attractive” compared to the best easy access savings account, which yields 1.65% (source: Moneyfacts), and compared to the ten year government bond which currently yields 1.7%.

Investors who apply for Lloyds shares within an ISA or SIPP (Self-Invested Personal Pension) will be able to receive those dividends free of UK income tax, and profits will be free from capital gains tax too.

The bonus

A 5% discount to the market price and a one for ten bonus share offer may represent an attractive deal for investors, but bonus shares are capped at a maximum of £200, which means investors will receive no further bonus shares for additional investment above £2,000.

According to Hargreaves Lansdown, based on £1,000 invested, an investor could expect a £50 price discount, an anticipated £50 dividend in 2016 (if the market price remains at today’s level at the time of the sale), and a further £100 in bonus shares a year down the line.

The government has also said it will prioritise applications of less than £1,000, so there could be some scaling back if the sale is oversubscribed, as is likely.

Russ Mould, investment director at AJ Bell, said: “Ultimately investors should only buy the shares if they feel comfortable with the investment case for Lloyds. Growth is likely to be limited, as the UK is a mature and tightly regulated market, and cost-cutting can only take the bank so far. The bulk of any returns from the stock is therefore likely to come from its dividend yield and anyone looking to buy Lloyds therefore needs to be confident that analyst forecasts for a payout of around 3.9p per share in 2016 – equivalent to a yield of 5.0% on the current share price – is both realistic and sustainable.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Six facts from the first six months of pensions freedom

To mark six months since the introduction of pensions freedom rules, the Association of British Insurers (ABI) has released six top facts about...

Close