The outlook for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) may be less certain than for a number of other FTSE 100 shares. The bank is almost exclusively focused on the UK, and with Brexit due to take place next year the prospects for the economy may continue to be uncertain.
However, according to the bank’s recent update, the downgrades to the UK’s economic outlook have not yet negatively affected its financial performance. In fact, the company seems to be upbeat about its future prospects, with it planning on investing up to £3 billion in a digital and customer service-focused strategy.
This has the potential to boost the financial performance of Lloyds over the medium term. It could help to make it more competitive in what remains a crowded marketplace, and this may lead to stronger profitability in future years.
With the company currently yielding over 5%, it is already one of the highest-yielding shares in the FTSE 100. However, it has the potential to improve on its current income return in my view, with its EPS growth having the capacity to rise due to its strategy change and the prospect of a 2% interest rate by 2020.
Lloyds may also be able to afford a higher payout ratio than the 45% it is due to have in the current financial year. This could lead to a more attractive dividend growth rate over the medium term.
Sure, there are risks ahead for the company. It continues to be highly dependent upon the performance of the wider economy. And with political risk being high at the moment, investor sentiment could come under pressure at times in future.
But with a high yield and dividend growth potential, I believe that the company continues to offer income investing appeal. In time, it could become a more obvious dividend choice.