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with a leading bank Lloyd’s (LSE: LLOY) To announce full-year results for the City tomorrow, I’ve been considering whether now might be a good time to buy stocks for my portfolio again. I sold last year, because I’m concerned about the broader economic environment and the fact that the bank’s profits have not yet returned to pre-pandemic levels.
Could Lloyd’s earnings forecast be enough to entice me back into stock?
Lloyds earnings forecast
Last year saw terminal earnings grow by 230%. However, I don’t expect anything like the same order of increase this time around.
In the interim phase this year, the year-on-year increase was 19%. While it’s much less than the 230% jump, it’s still significant. My earnings forecast at Lloyds for tomorrow is an annual increase of about 19%, or maybe a little more. This would bring the final dividend to 1.6p per share.
Before the pandemic, final earnings accounted for about two-thirds of the year’s total. With last year’s interim dividend of 0.8p, the final payment of 1.6p would restore that historic distribution between interim and final payments.
If the dividend for the full year is 2.4p, that means Lloyds shares at today’s price offer an expected yield of about 4.7%.
Slow dividend recovery
Lloyds’ full-year earnings forecast of 2.4p per share, however, would still leave the yield lower than it was before the pandemic.
The interim yield was only 71% of its 2019 equivalent. However, between 2019 and last year, earnings per share for the six-month period in question grew by 37%. Based on that, I would have expected the interim yield now to be significantly larger than it was in 2019, when in reality it is much smaller.
additional capital return
It’s not like Lloyds doesn’t have plenty of cash. In fact, the dark horse used up to £2 billion of spare cash to buy back its shares. I wouldn’t be surprised to see more buybacks tomorrow. The business is the UK’s leading mortgage lender with a strong brand. Both things can help her make big profits.
My conclusion is that the bank’s management simply does not prioritize restoring the dividend to the pre-pandemic level. She had ample cash that she could have done it, but she chose not to do it just yet.
There is also the possibility of a special dividend. Lloyds could distribute some of its surplus capital at a one-time dividend. But with management’s position on the dividend so far and the risk of increased loan defaults hurting earnings, I wouldn’t expect such a move.
Over the past year, Lloyds’ share price has finally moved sideways: It’s almost exactly where it started. Since the share buyback resulted in fewer shares outstanding, it means that the overall valuation of the bank has actually fallen in that period.
While the dividend yield is attractive, I think the steady share price indicates investors’ continued concern about what a weak economy could mean for the bank’s earnings. I have such concerns myself. Given that, Lloyd’s earnings outlook isn’t enough to sway me. So I will not buy.