Lloyds gets mortgage and impairments boost, Shell hikes the dividend

“Like an imperilled climber the FTSE 100 was left clinging to the rock face this morning after its big plummet,” says AJ Bell Investment Director Russ Mould.

“Helping stabilise the index, after last night’s news that France is entering a nationwide lockdown, was positive news for income investors from BT, top of the leaderboard as it flagged the likely resumption of dividends, and Royal Dutch Shell which increased its own pay-out on better than feared third quarter numbers.

“After yesterday’s big sell off on Wall Street, investors will be watching the US open closely to see if the recovery implied by trading in futures markets materialises.”

Lloyds

“The third quarter update from Lloyds suggests it was in a much better position than the market expected – a month ago.

“Today, with a second wave in the covid-19 pandemic a reality rather than a nagging fear, the picture looks a bit different.

“To concentrate on the positives – a property market supercharged by the stamp duty holiday and pent up demand from the first lockdown in spring helped Lloyds rack up big profit in its mortgages arm – with the competitive pressures in this market lessened as lenders become more cautious.

“Lower than expected impairments also suggest that for now coronavirus isn’t having quite the impact on Lloyds’ credit book as might have been feared.

“However, again, both these tailwinds could soon turn around and be blowing in Lloyds face before long as unemployment mounts, particularly given the impact of increasingly tough restrictions affecting already hard-hit sectors of the economy.

“A big question, with Lloyds sitting on a very healthy capital buffer, is whether it and the rest of its peers will be able to return to the dividend list.

“The decision on dividends is ultimately in the hands of the regulator and despite speculation that banks will get the green light to start doling out cash to shareholders again, this, as with much else, feels difficult to predict with any confidence.”

Royal Dutch Shell

“Oil major Royal Dutch Shell sprung the nice kind of surprise with its decision to hike the dividend having posted better than expected third quarter performance.

“It is worth keeping the 4% increase in the pay-out in perspective given that just to get back to the levels seen before its big cut back in April, the first since the Second World War, the dividend would have to be increased by nearly 200%.

“However, the modest rise and an accompanying blueprint for future growth in the dividend is at least a gesture to shareholders that their need for income won’t be completely forgotten as the company looks to continue its transition to a post fossil fuels future.

“That future still remains distant – the vast majority of the company’s profit and crucially cash flow still comes from oil and natural gas.

“This has the twin impact of leaving it exposed to volatile prices for those commodities and liable to pressure from shareholders and politicians over its impact on the environment.

“The company is also looking to reduce its indebtedness. It all adds up to a very tricky juggling act for chief executive Ben van Beurden. Efficiency will have to be the watchword and that lies behind initiatives like reducing its refining portfolio from 14 sites to just six.”

Keep in mind this is information only, and not a personal recommendation to buy or sell any of the funds referenced above.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.