Lloyds shares lag those of peers in potential dark horse sector for investors

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“A sharp 4% drop in Lloyds’ shares at the opening reflects a complicated set of first-quarter figures and could further delay Chancellor of the Exchequer George Osborne’s plans to sell the Government’s remaining stake in the high street bank", says Russ Mould, AJ Bell Investment Director.

“The reception given to the first-quarter figures has been as chilly as the recent weather, which in some ways is surprising, as a number of other banks have posted substantial year-on-year drops in earnings but seen their share prices creep higher – Standard Chartered, Spain’s Banco Santander and Germany’s Deutsche Bank are just three examples from this week.

“The FTSE All-Share Banks sector is the worst performer to date in the UK market, out of 39 industry groupings, but it has shown signs of a tentative recovery of late. The market may therefore be starting to wonder whether profit forecasts are so low, and the operating environment so tricky, that things can hardly get worse, and that if they can hardly get worse, then maybe they could get better.

“If Lloyds can finally put a lid on PPI claims, keep costs under control and reduce the “one-off” items that have marred its earnings for so long, the bank’s profits should start to rise sharply.

“That in turn will help it to pay dividends to shareholders and establish its credentials as a yield stock at a time when many investors are crying out for income. According to the consensus analysts’ forecast, Lloyds will pay a dividend of 4.41p per share equivalent to a 6.6% yield on a share price of 66.1p and enough to make the stock one of the 10 highest-yielders in the FTSE 100.”


Source: Company accounts, Digital Look, analysts’ consensus estimates
NOTE: Past performance is not a guide to future performance and some investments need to be held for the long term

These articles are for information purposes only and are not a personal recommendation or advice.


The chart of the week is written by Russ Mould, AJ Bell’s Investment Director and his team.