Lloyds shares: what investors need to know

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Written by: Your Money
01/06/2015
The government has confirmed its pre-election pledge to launch a sale of Lloyds shares to retail investors within the next 12 months.

Here, Hargreaves Lansdown’s Laith Khalaf outlines what investors need to know about the shares.

Lloyds – public share offer

Further details about the retail share offer will be set out in due course. However, in the Conservatives’ pre-election pledge, they said investors would be able to apply for between £250 and £10,000 of shares and, if the shares are held for a year or more, receive a bonus of one extra share for every ten held, subject to a cap of £200 of bonus shares for each individual investor. Further press reports have also suggested the shares could be bought by investors at a discount to the market price.

The retail sale is likely to be a very high profile event which will encourage members of the public to invest for their future, many for the first time.

Lloyds – forecast dividend yield for 2017

Analysts are forecasting a 2017 dividend (variable and not guaranteed) of anything between 3.3p per share and 7.0p, putting the stock on a yield of between 3.7% and 7.9%, based on today’s price of circa 89p per share.

Lloyds is already popular with DIY investors and some income managers

14% of DIY investors hold Lloyds (based on Hargreaves Lansdown clients), and collectively hold 2.5% of their portfolios in the bank. Lloyds makes up around 2% of the FTSE All Share, so DIY investors are effectively ‘overweight’ the stock.

Even some income fund managers have built up positions in Lloyds, despite the fact bank has only just returned to the dividend list since 2008, with a token payment for income investors of 0.75p per share. Adrian Frost, manager of the £7 billion Artemis Income fund, is one such manager; he believes the bank will soon be paying a rising dividend stream.

Lloyds-outlook

Lloyds is trying to be the best bank for customers and a simple bank for shareholders. The continued reduction of non-core assets and the exit from many overseas activities is leaving a core bank that looks more and more like the old Lloyds Bank and the Halifax, but with modernised systems and competitive cost structures. With capital strong, income growing and perhaps a lower level of exceptional redress costs going forwards, Lloyds is well placed to grow its dividend in future years.

Lloyds won’t be the fastest growing animal, because it already has big shares of mature markets. But having reached a position of financial strength, it can afford to pay out a rising proportion of earnings as dividends, giving the prospect of a period of strong dividend growth and a generous proportion of income eventually paid out to investors.

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