On 9 December 2015, I boldly proclaimed that Lloyds Banking Group (LSE: LLOY) is my top stock pick for 2016. With harrowinginevitability, the share price starteddropping almost immediately. At the time I tippedit, Lloydstraded at around 72p.Exactly two months later it hit a low of 56p, having fallen more than 20% in that time. Some tipster I turned out to be.
Laugh out Lloyds
Happily for my sense of self-worth, Lloyds has recovered from its shocking start to 2016. Today it trades at 67p, so its now down only 7% since I tipped it. But thats still a long way from the sunlit uplandsI was envisaging. So what went wrong?
In December, markets were still anticipating a Lloyds retail investor flotation. Itwas supposed to be fully in private hands by June, but Januarys market meltdown put a stop to that. Banks were at the epicentre of global storms, with British banking stocks suffering for the sins of their European cousins. Soin part, Lloyds isan unlucky victim of wider circumstances. Yetit has actually faredmuch betterthan rival Barclays, for example, which is down 23% since 9 December, whileRoyal Bank of Scotland is down 15%. Lloyds still looks likeone of the safer prospectsin a troubled sector.
Lloyds leaps
Investors saw Lloyds in a more positivelight when its 2015results were published showingan underlying profit of 8.1bn, up 10%, and ahealthy 15%underlying return on equity.The share priceleapt almost10% on the day, helped by signsthat legacy issues such as themultibillion pound PPI hangover were now clearing. The results were another staging post on the comeback trail.
One reason I hailed Lloyds was for the relatively conservative nature of its revampedbusinessand although thatdidnt protect investors from Januarys global meltdown, itsTier 1 capital ratio of13.9% still has the beating of most banks acrossEurope.
Income machine
Lloyds wont be immune from further stock market storms. And as I rightly statedin December, it wontbe abumper growth stock. I also warned that earnings per share were forecast to fall 8% this year. The reason I singled it out for praise wasfor its gloriousdividend prospects, concluding that:With dividend payouts crashing all around it, Lloyds set to bethe incomehero of 2016.
My confidence was repaid when management announced anadditional special dividend of 0.5p per share at the end of February. This suggests to me that management is willing to reward the faithful, through thick and thin. Income seekers will be expecting more thick than thin, with markets forecasting that the stock will yield 6.5% by the end of this year, rising to an even juicier7.6% by December 2017.
On 9December you could buy Lloydsat 8.6 times earnings. Today, its valued at eight times. That makes it an even better buy today than it was then. Im not alone in liking Lloyds: on Monday HSBC added the bankto its Europe Super 10, rating it a buy with a target price of 80p. Rather than being my worst EVERshare tip, Lloydscould still prove one of my best. Just give it time.
I reckon that Lloyds is one of the best income stocks on the UK market today but there are other exciting opportunities.
The stock namedin this NEW report A Top Income Share from The Motley Foollooks poised to deliver a growing income stream formany years to come.
While many leading UK companies are slashing their dividends, this FTSE 250 star accelerated its payout at astonishing speed in 2015.
The Fool’s crack team of analysts is so impressed by this company’s ambitious growth plans they’re happy to call it one of the best income stocks on the market today.
Click here to enjoy this FREE, no-obligation wealth report. It will be yours in moments and won’t cost you a penny.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
