Shares in Lloyds Banking Group rose more than three per cent to over 76p per share in morning trading after the FT reported chief executive Antonio Horta-Osorio had told potential investors he hopes to return up to 70 per cent of the bank’s earnings in dividends to shareholders by 2015.
Shareholders haven’t received a dividend since 2008 when the bank was bailed out by the government and required to stop making payouts.
Last week, the share price of Lloyds passed the 73.6p per share the government paid to bail out the bank as it reported a return to profit, a fall in bad debts and plans to open new branches this year. It also reiterated plans to float in mid-2014.
Analysts at UBS have increased their forecast for the Lloyds share price to 100p from 72p. They now think dividends will be announced in the full-year 2013 results, rather than the end of 2014. UBS has a "buy" rating on the stock.
Lloyds is returning to the business model of 1996 to 1999 which we have been anticipating for some time – with costs falling, revenues on an upward path, provisions sharply below expectations and with the capital intensity of the business declining, Lloyds is on the verge of delivering material returns to shareholders through dividends, business growth and potential share buybacks.
The Swiss bank is the latest (and probably not the last) to raise its forecast for shares in Lloyds. On Friday, analysts at JP Morgan Cazenove analysts raised their target to 77p from 65p with a "neutral" rating, while Citi analysts raised their target to 80p from 70p and Shore Capital analysts reiterated their "buy" rating.
The situation will no doubt please chief executive Horta-Osorio, whose bonus is linked to the government selling off at least a third of its stake at a price above 61p, or the share price remaining above 73.6p for a certain period of time.
The Sunday Times reported yesterday that the banking head was in line for a bonus worth £2.2m after the share price rose above the break-even point and an acceleration in privatisation plans. The bonus would be paid in shares, but he would not be able to touch them until 2018.
Last week, Reuters cited sources saying the government could see around a quarter of its stake to institutional investors like pension and hedge funds as early as this week.
Shares in Lloyds Banking Group have a 52 week low of 29.198p and a 52 week high of 74.92p. The 50-day moving average is around 37.6p and the market cap £55.583bn.