Why does Lloyds Banking Group PLC yield 50% more than the FTSE 100?

Could Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) offer better dividend investing potential than the FTSE 100 (INDEXFTSE:UKX)?




Lloyds Banking Group PLC
Lloyds Banking Group PLC

The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has a dividend yield of around 6.1% at the moment. This is around 50% higher than the FTSE 100’s yield of just over 4%, and suggests that the bank may be able to offer a higher income return than the index over the long run.

Of course, one reason for the bank’s higher yield is its falling share price over recent months. In 2018, it has declined from 67p to 56p, which is a fall of 16%. Investors seem to be applying larger discounts to UK-focused shares ahead of Brexit, and I wouldn’t be surprised if this trend continues as the process moves ahead in the next few months.

Lloyds generates the vast majority of its income from the UK. Although this may increase its risk versus some of its industry peers, I feel that it has made significant improvements to its financial strength and efficiency in recent years, with its performance in stress tests being relatively strong.

Clearly, the FTSE 100 index offers greater diversity than the bank. Its yield is more resilient in my opinion, simply because it is made up of the dividends of a number of different stocks.

In the long run, I feel that the Lloyds share price could deliver improving total returns. I believe that it is making the right moves in terms of its strategy, with it focusing on efficiency and digital opportunities.

These areas could provide it with a competitive advantage and may lead to a rising bottom line over the long run. That’s particularly the case since it may have greater size and scale to invest in digital growth versus some of its smaller peers.

As a result, while uncertainty could be ahead for the stock in the near term, I’m upbeat about its investment potential over the long run compared to the wider index.




About Robert Stephens 5151 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