Will Lloyds Banking Group PLC be one of the highest-yielding FTSE 100 shares next year?

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


With Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) expected to pay a dividend of 3.6p per share in 2019, it has a dividend yield of around 7% for next year. Although its dividend is not guaranteed and may not be in line with its forecast, such a yield would make it one of the highest-yielding stocks in the FTSE 100.

In fact, it would be around 250 basis points higher than what is already an impressive FTSE 100 dividend yield of 4.5% in my view. And since the bank’s payout ratio is due to be under 50% in 2019, I think it looks affordable even with uncertainty surrounding the UK economy being high.

Of course, one reason for Lloyds having such a high forward dividend yield is its recent share price fall. The company’s market value has dropped from 68p at the start of the year to around 52p. In the short run, I wouldn’t be surprised if the company’s shares come under further pressure as Brexit uncertainty remains high.

In fact, it feels as though there is a new story everyday regarding Brexit, with the latest being that the government is discussing the idea of ramping-up spending in preparation for a no-deal Brexit. Stories such as this could cause further uncertainty among investors, and may lead to additional weakness for UK-focused stocks.

Still, I’m upbeat about the long-term prospects for the UK economy. I believe that Brexit could prove to be a buying opportunity for a long-term investor like me, since valuations are lower. In the case of Lloyds, it seems to have a sound strategy in my opinion which could lead to improving financial performance as it seeks to adapt to changing customer tastes when it comes to digital opportunities.

Therefore, while not a particularly robust dividend share, I feel that the stock could offer improving total return prospects – but only over an extended time period.

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 info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page