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In 2016, Lloyds (LSE: LLOY) (NYSE: LYG) is expected to yield a hugely appealing 5.2% at its current share price. This should attract a significant number of investors to the stock and help to push the bank’s share price higher between now and then, as investors continue to seek out relatively high yields.
Furthermore, there is much more to come from Lloyds when it comes to dividends. That’s because the bank is aiming to achieve a payout ratio of around 65% over the medium term, which means that it should prove to be a generous share for shareholder payouts. And, with interest rates due to stay low for a number of years, this could be of huge benefit to investors in the bank.
Meanwhile, Lloyds continues to offer excellent value for money. For example, it trades on a price to earnings (P/E) ratio of just 10 and this shows that there is capital gain potential as well as a great income return on offer.
Considerable appeal
While Amlin’s (LSE: AML) headline yield of 5.6% is hugely appealing, the insurance company also offers a significant scope for an upward re-rating. For example, it trades on a price to book (P/B) ratio of just 1.4, and this indicates that its shares are undervalued at the present time. Furthermore, a P/E ratio of just 12.3 provides further evidence that Amlin has capital gain potential over the medium term.
Of course, Amlin’s bottom line is due to stall over the next couple of years, and this could cause concern for income investors. However, with a payout ratio of just 69%, Amlin should be able to increase dividends per share by at least as much as inflation (assuming it rises from its current level of zero), thereby maintaining its considerable appeal as an income stock in 2015 and beyond.
Generous dividend payments
Clearly, the stability of a company and its bottom line is of major importance to income seeking investors. However, in the case of Tullett Prebon (LSE: TLPR) the challenges that it is facing appear to be fully priced in to its current valuation. For example, it trades on a P/E ratio of 11.4 and, although its profitability has declined in each of the last four years, it is forecast to rise in each of the next two years.
As such, its yield of 4.5% has huge appeal — especially since it is covered 1.9 times by profit. So, even if the company’s performance does disappoint, it has a wide margin of safety and sufficient headroom to continue making generous dividend payments.