Yahoo Finance Lloyds Banking Group plc (LON:LLOY) Is Yielding 5.7% - But Is It A Buy?
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Is Lloyds Banking Group plc (LON:LLOY) a good dividend stock? How would you know? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
In this case, Lloyds Banking Group likely looks attractive to investors, given its 5.7% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.
Explore this interactive chart for our latest analysis on Lloyds Banking Group!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Lloyds Banking Group paid out 58% of its profit as dividends, over the trailing twelve month period. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
Remember, you can always get a snapshot of Lloyds Banking Group's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Lloyds Banking Group's dividend payments. This dividend has been unstable, which we define as having fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was UK£0.35 in 2009, compared to UK£0.032 last year. This works out to a decline of approximately 91% over that time.
A shrinking dividend over a ten-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.
Dividend Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It's good to see Lloyds Banking Group has been growing its earnings per share at 51% a year over the past 5 years. With recent, rapid earnings per share growth and a payout ratio of 58%, this business looks like an interesting prospect if earnings are reinvested effectively.
Conclusion
To summarise, shareholders should always check that Lloyds Banking Group's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Lloyds Banking Group's payout ratio is within normal bounds. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Lloyds Banking Group out there.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 19 analysts we track are forecasting for Lloyds Banking Group for free with public analyst estimates for the company.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
