2 surprising income stocks: Lloyds Banking Group PLC and BT Group plc

Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) and BT Group plc (LON:BT.A) (BT.A.L) could have more income appeal than many investors realise

Lloyds Banking Group PLC
Lloyds Banking Group PLC

Although Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) and BT Group plc (LON:BT.A) (BT.A.L) have not been among the most popular income stocks in the past, I think they may have dividend appeal for the long term.

CPI inflation is now at 2.6% and is forecast to move higher over the medium term. This could increase the appeal of dividend shares for many investors to my mind, which may make stocks with relatively high yields more appealing.

The Lloyds share price may have gained around 4% since the start of the year, but the stock is still expected to have a dividend yield of 6% in the 2017 financial year. This makes it one of the highest-yielding blue-chip shares I can find at the moment.

Next year, the bank is expected to increase dividends per share from this year’s anticipated 3.9p to 4.4p. This means it has a prospective dividend yield of 6.8% at its current share price level. According to my research, there are very few UK-listed stocks with higher dividend yields forecast for 2018.

Similarly, BT may have a higher yield than many investors realise. After a share price decline of around 15% in 2017, it now has a dividend yield of 4.9%.

Although it faces an uncertain future due to challenges in its Italian division and a continued restructuring, I think the company’s strategy remains sound. Investment in its product offering could lead to improved financial performance, which may strengthen its dividend potential.

Lloyds also has an uncertain future, due mainly to the instability in the UK economy caused by Brexit. However, with a relatively low cost to income ratio and a balance sheet which I feel has improved significantly in recent years, I believe the company’s income prospects remains relatively appealing for the long term. Its low valuation also makes it a stronger investment prospect in my eyes, with it trading close to NAV at the time of writing.

About Robert Stephens 3883 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page