Investors in Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) had a rare old timein 2012 and 2013 when the share price more than tripled from 27p to 87p. Its not often an institution of this size turns into a three-bagger.
Last year, it soon became clear that the recovery had run its course, as it became impossible to sustain thisrateof acceleration.
Lloyds has been idling ever since, and currently trades at around 78p, marginally above its bail-out price of 73.6p. Momentum has stalled.
For me, this makes Lloyds a more tempting prospect than a year or soago, when the bandwagon was still rattling happily along.
Its A Scandal
The wider UK market also went into neutral in 2014, as company valuations struggled to play catch-up with the post-financial crisis bull run, and faltered on geopolitical worries. Lloyds was part of that process.
It was also heavily implicated inthe UK banking malaise afflicting the UK banking sector, damagedbyrate-rigging and mis-selling scandals, fine inflation, banker bashing, tax raids and the subsequent retrenchment across the industry, as Barclaysdroppedits attempts to crack Wall Street and Lloyds reduced its territorial spread from 30 nations to just six.
Lloyds also suffered personal problems, such as disappointing stress test results, investor lawsuits, its controversial plans for job cuts and branch closures, andthe PPI scandal, which has cost it12bn so far, more than any other bank.
Underlying Truths
Underlying earnings and results were far more racythan its sluggish share price performance would suggest.
Profits in 2014 rose 26% to 7.8bn. A falling loan-to-deposit ratio allowed it to reduce its dependence on wholesale funding, while risk-weighted assets fell 32bn to 240bn.
Its simplification programme is cutting costs by around 2bn a year.
There is still a way to go. The election is casting a shadow over its immediate prospects, and the result will partly determine what happens to the remaining 20% taxpayer stake.
5.3% Income Next Year
Lloyds is becoming what it was before: a leaner, lower risk operation focusing on the mature UK market, with a sniff of a dividend.
It may pay a meagre 0.75p a share today, but chief executive Antonia Horta-Osorio has a medium-term goal of paying out half its company earnings as dividends.
Currently, it yields 1%, but that is forecast to hit 3.5% by the end of this year, and 5.3% by December 2016.
Devaluation isnt that demanding either,at around 9.7 times earnings.
Lloyds may have stalled over the last 15 months, but that givesyou an opportunity to jump in before the share price accelerates again.
If you can’t wait until 2016 to get base rate busting income, the FTSE 100 is packed with top stocks that are alreadypaying as much as 5% or 6% a year.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
