Shares in banking goliath Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) have hardly enjoyed a resplendent year-to-date, as fears over another eurozone economic crisis, the financial fallout of various misconduct issues and concerns over capital levels have dented investor appetite.
As a result shares are currently down 3% from the turn of the year. Given this enduring weakness I am looking at whether the bank could be a terrific portfolio filler at current price levels.
Earnings expected to flip higher
In light of its ongoing restructuring plan and exposure to a resurgent domestic economy, Lloyds is expected to drag itself into positive earnings territory this year after four consecutive years in the red — earnings of 7.8p per share share are currently anticipated by City brokers, snapping from losses of 1.2p in 2013.
And the bank is forecast to maintain this positive momentum with a 5% improvement in 2015 to 8.2p.
These projections make the business a veritable bargain based on conventional metrics, with Lloyds carrying P/E multiples of just 9.9 times and 9.4 times potential earnings for 2014 and 2015 correspondingly. Any reading below 10 times is generally considered spectacular bang for one’s buck.
Dividends back on the table?
Lloyds confirmed in October’s interims that it remains locked in talks with the Prudential Regulation Authority (PRA) over when it can restart shareholder payments, the firm having failed to fork out a dividend since its bailout five years ago.
And the number crunchers are predicting a positive conclusion to these talks, culminating in the bank forking out a final dividend of 1.1p per share for 2014. And a resumption of dividends is expected to produce a total payout of 2.9p in 2015, in turn creating a tasty if unspectacular yield of 3.8%. By comparison the complete banking sector carries a forward average of 3.6%.
Still, speculation is rife that the Bank of England’s capital stress tests — due for publication in mid-December — may damage Lloyds’ ability to get dividends again rolling soon, particularly as it still requires regulatory permission to do so. The bank scraped past the European Banking Authority’s minimum 5.5% CET1 ratio with a reading of 6.2% last month.
Ride the ‘black horse’ for stunning returns
But in the long run, I am convinced that Lloyds remains an attractive stock selection for both growth and income investors. The company affirmed its commitment to cutting costs by slashing 9,000 staff and closing 200 branches last month, a move which also put an exclamation point on its commitment to latch onto surging demand for digital banking.
And I believe that a significantly de-risked Lloyds should benefit from improving retail business as UK economic growth clicks through the gears in coming years.