Shares in the state backed UK banks have been called “uninvestable” by some. Lloyds (LSE: LLOY) (NYSE: LYG.US), the 25% government-owned lender, has been fined £218m in relation to the manipulation of Libor between May 2006 and 2009. The individuals involved have all either left Lloyds, been suspended or are subject to disciplinary hearings.
The last time investors in Lloyds saw a dividend was 2008 — but while the bank expects to apply to the regulator before the end of 2014 to restart payments, the uncertainty around the shares will remain until payouts advance beyond the “modest” level from which they will commence.
So, is Lloyds genuinely uninvestable? At this juncture it’s certainly speculative.
City experts are expecting Lloyds to announce a 1.5p per share dividend next year. At today’s 75p share price the prospective yield is around 2%.
Lloyds chief executive, António Horta-Osório, is at pains to stress the change in culture and values at the bank. “The behaviours identified by these investigations are absolutely unacceptable. [We] have taken vigorous action over the last three years to prevent this kind of behaviour, through closing or reducing our legacy investment banking activities,” Horta-Osório said.
When constructing a dividend portfolio, you should start with solid companies yielding around 4%. In some circumstances a slimmer 3% yield with growth potential could also be attractive.
In this context, Lloyds is neither, and Horta-Osório’s words, which I’m sure are quite genuine, offer the retail investor very little.
