Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has been on a roll for so long that you wonder how much further it has to go.
The troubled bank’s share price is up 250% over the past three years, and after pausing for breath in recent months, sprinted another 12% in the last four weeks.
That is quite a recovery.
On The Mend
And the patient continues to edge back towards full health. Lloyds has steadily stripped risk from its balance sheet and bolstered its liquidity position. It has exited riskier foreign territories. Slashed branch network costs to bolster its higher-margin digital operation. Cut impairment charges.
And despite making a £660m loss on the sale of TSB, it still managed to deliver first-quarter profits of £2.18bn, up 21% year-on-year.
Shadow Play
The UK government has now halved its stake to around 20% without doing undue damage to the share price, so that is another shadow that is steadily clearing.
As is the PPI mis-selling scandal, which has cost Lloyds £12bn in compensation provision so far, more than any other bank. But we now appear to have passed peak claims, which should reassure investors, although of course you never know when the next banking scandal will strike.
Income Fun
Lloyds will really start to give off a healthy glow when the dividend is restored to its former glory, and that is now heading in the right direction.
Management is pencilling in a full-year payment of 2.9p per share for this year, equivalent to a 3.2% yield, which is on course to hit 4.7% by the end of 2016.
That will be comfortable above the FTSE 100 average of 3.5%, with scope for further hikes to come.
With today’s low interest world likely to persist for years, whatever threatening noises US Federal Reserve hawks are making, savers will surely flood in.
In Full Sail
Lloyds still trades at just 10.7 times earnings, which looks undemanding given its prospects.
Its UK retail operations may get knocked by a wider UK slowdown, although with housing market sentiment enjoying a post-election bounce, there still seems scope for further mortgage lending growth.
Of course a Grexit, Brexit, China slowdown or other global nasties could derail Lloyds (or any other share for that matter), but otherwise the share price looks on course to sail yet higher.