The last few years have been incredibly tough for savers, with interest rates being at historic lows of just 0.5%. Indeed, the Bank of England seems reluctant to raise rates even by a very small amount for fear of choking the UK’s impressive, albeit fragile, economic recovery.
So, with savings accounts and bonds offering paltry returns, cash-rich savers and investors have had limited options available to them. However, looking ahead to 2015, these three banking stocks offer a generous yield and the potential for dividend growth, as well as share price growth. As such, they could grow your income in 2015 and beyond.
Lloyds
Although Lloyds (LSE: LLOY) (NYSE: LYG.US) may not strike you as a top income play, since the bank is only expected to recommence dividend payments this year after a five year hiatus, it has strong dividend potential. That’s because of a return to profitability, which is also due to take place this year, as well as earnings growth potential and an increasing payout ratio.
For example, Lloyds is expected to increase earnings by 7% next year, which is in-line with the wider market growth rate and provides scope for dividend increases. Furthermore, Lloyds is targeting a payout ratio of 65% by 2016 which, if met, could mean that shares yield as much as 4.2% next year (assuming a constant share price).
With such an impressive forward yield and the potential for it to go even higher, Lloyds could become a top notch income play.
HSBC
As the most stable of the UK-listed banks, HSBC (LSE: HSBA) (NYSE: HSBC.US) is an obvious choice when it comes to income investing. Having remained profitable throughout the credit crunch, HSBC offers a relatively reliable yield of 4.8% and this could be set to grow over the next year.
Indeed, HSBC is expected to increase dividends per share by 8.4% in 2015. This is well ahead of inflation and means that shares in the bank could be yielding as much as 5.2% next year. With dividends being covered 1.7 times by profit, it appears as though HSBC is a sustainable income play, too.
Santander
Santander’s (LSE: BNC) yield of 7.4% is a real headline grabber. However, potential investors should be aware that dividends per share currently exceed earnings per share, which is clearly an unsustainable situation.
However, Santander is due to cut dividends next year so that shares in the bank yield a still very impressive 6.5%. This, combined with strong earnings growth prospects of 23% in the current year and 22% next year, means that Santander’s dividend should be on a sustainable footing moving forward. With a mix of income and growth, Santander could give your income, and portfolio, a boost in 2015.