Are Lloyds Banking Group PLC’s dividend growth prospects positive or negative?

Does Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) offer an improving income investing outlook?

Lloyds Banking Group PLC
Lloyds Banking Group PLC

The dividend investing prospects of Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) continue to be generally positive in my view. The company is expected to pay a dividend of 3.4p per share in the current year, with this expected to rise to 3.6p per share next year.

This means that in the 2018 and 2019 financial years combined, the company is expected to pay over 12% in dividends. Given that inflation is 2.4% per annum, I think that could represent a strong income return. It is around 50% higher than the FTSE 100’s expected income return at the moment.

Of course, Lloyds faces an uncertain set of operating conditions just now. The UK is facing the biggest political and economic change in some time, and it appears to be causing a period of caution from businesses and consumers.

In my opinion, this situation could continue in future months, since I believe there may be some difficulty involved in getting the current Brexit deal through Parliament. There seem to be a number of Conservative MPS against the deal, and this could be enough for it to fail to pass through the House of Commons.

If a no-deal Brexit takes place, investors may demand a greater margin of safety for UK shares such as Lloyds in my view. In spite of this, I think the company has a good strategy that focuses on efficiency, reducing balance sheet risk and generating improved profitability through acquisitions and investment in areas such as digital services.

Therefore, although Brexit may cause some uncertainty, I’m upbeat about the stock’s long-term dividend potential. I feel that the UK economy could perform well in the long run, and UK-focused shares may offer large margins of safety due to investor uncertainty. While there may be more resilient dividend shares, I’m optimistic about the bank’s total return potential at the moment.

About Robert Stephens 5430 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 or use one of the other contact methods available on the 'Contact Us' page