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

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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.”

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