Up 60% in a year
With everybody wondering when the government will start to sell off the rest of its stake in Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), I’m wondering whether now is a good time to buy it? Lloyds has been one of the most intriguing and exciting FTSE 100 stocks over the last few years. If anything, the political uncertainty has worked in its favour, with the share price up 60% in the past 12 months. And I reckon there’s more fun to come in 2014.
First, that sell-off will keep Lloyds firmly in the headlines. Even if it doesn’t happen this year, people will be talking about it. And one topic of conversation will be the prospect of a rebooted dividend. You might wonder why everybody is obsessed over the tiny matter of a dividend, when the stock has returned 200% growth over the past two years. But in the longer run, the yield is where you will make your money. Nobody is banking on Lloyds growing another 200% in the next two years.
Dividend action
All being well, Lloyds will soon start chucking regular monthly dividends in your direction, just as it did in its halcyon pre-crash days. And when it does, the share price will take a little jump for joy. Buy it now, and you are locking into that lucky day. You are also buying forecast earnings per share growth of a whopping 31% across 2014. That is pretty impressive, following four n/a strikeouts in a row (not to mention falls of 65% in 2008 and 26% in 2009). Digital Look puts Lloyds on a prospective yield of 2.9% by December. I’m not sure that can be predicted with accuracy, given that this is partly a political decision, but it’s something to look forward to.
It has been a long journey back to stability and profitability, but Lloyds is getting there, with group underlying profit up 7% in Q3 to £1.52 billion and 83% year-on-year. The recovering housing market will help, especially if it drives a wider UK recovery, because Lloyds is so heavily exposed to its home country. The journey back to respectability, however, is another matter, following the recent £28 million fine for its “sell or be demoted” bonus scheme.
That won’t stand in the way of privatisation, with press talk suggesting the remaining 33% taxpayer stake in Lloyds, worth around £19 billion, could be sold off before the end of the year. Or failing that, May 2015. The market swallowed September’s £3.2 billion institutional offering with barely a burp, so I don’t foresee any share price damage in the next round. But first, Lloyds will restore its dividend. And that’s a good reason to smile in 2014.