Whenever I look at Lloyds Banking Group (LSE: LLOY) shares, I just see a cash cow.
Even in 2023, in the crunch of an inflation and interest rate crisis, the bank’s liquidity looks strong. At Q3 time, its CET1 ratio stood at 14.6%, well ahead of target.
Then I see a forecast dividend yield of 5.4%, and I look at all those big investors not buying, and I think… come on, what are you waiting for?
Dividend forecasts
To be fair, I’ve thought that for a few years now. But I do think dividend forecasts could be the thing that finally puts some life back into the Lloyds share price. Even if they haven’t done so far.
I mean, look at the share price chart below. It doesn’t look like what I’d expect from a long-term high dividend payer.
Anyway, first, what do these broker forecasts actually say?
What the analysts say
There’s quite a range of opinions out there, and I think that’s part of the problem.
The 5.4% I quoted is from Yahoo! Finance. Google Finance suggests 5.5%. I’ve seen other at 6% and more for this year.
On top of that uncertainty, there’s been a trend to lower forecasts as 2023 has progressed.
As inflation has been pushing up input costs, City analysts have been pulling back their earnings and dividend growth forecasts for 2023 and 2024.
So does that mean the higher forecasts are those that haven’t yet been updated to reflect the rising bearishness?
Bullish future
Actually, I don’t think bearishness is the right word. It’s more that the market bullishness has become a bit less bullish.
It’s like your cup being full, and then you spill a bit and it’s only three-quarters full. You’ve still got plenty to drink. But the pessimists will worry and say: “Look, the trend is towards half empty“.
So yes, I really do think the uncertainty is hiding the attraction of these juicy dividend forecasts.
Uncertainty, of course, is always with us. But the way the banking sector has lurched from crisis to crisis over the past decade and more… well, I can understand investors being extra cautious right now.
So what next?
And that caution might be justified. I suspect we could have to wait until at least the end of 2024 to get a good feel for the full effects these past couple of years are having on the banks.
Liquidity looks good for now, and the banks have had the cash to pay dividends so far. Oh, and to take part in some very nice share buybacks.
But it might only take one more wobble for bank dividends to be squeezed. And for Lloyds, the mortgage market could provide that wobble.
Long-term view
Still, I’m in it for the long term. And those great dividend prospects surely have to draw investors back to Lloyds shares some time, don’t they?
If we see some stability in 2024, it might be sooner than we think.
