What did I expect to happen to the Lloyds Banking Group (LSE: LLOY) share price after FY results were released on 22 February?
Well, I thought the results would be at least as good as I expected, and the share price would hardly move.
And that’s pretty much what happened. The shares did pick up a few percent in morning trading. But it’s barely a scratch on the past five years.
Results: key points
So what are the key points in these results for me, as a Lloyds shareholder?
CEO Charlie Nunn spoke of “strong progress on our strategy and delivering increased shareholder returns“. He also told us that the bank’s “performance enabled strong capital generation and increased shareholder distributions“.
And that’s what it has to be about. Banks are in the business of cash. All kinds, derivatives, related services… but at the bottom of it all, it’s cash, pure and simple.
If a bank can keep generating lots of it and handing it to its shareholders, what else matters?
2023 returns
Lloyds upped its 2023 full-year dividend by 15%, to 2.76p per share. On the previous close, that’s a dividend yield of 6.4%. And if it’s really based on a “progressive and sustainable ordinary dividend policy“, there should be more to come.
Oh, there’s a new share buyback of up to £2bn too. And total capital returns for 2023 came to £3.8bn, worth around 14% of Lloyds’ market cap.
So with all this cash flying around, what’s the risk?
Most folk will probably point to inflation, interest rates, recession, bad debt provisions, and all the things that can harm the financial sector when the economy is in the mud. And yes, those are valid concerns.
Biggest risk
But I think the biggest risk is the market itself. Or, at least, market sentiment.
When a sector has had a tough time and is out of favour, the big investing firms just don’t want to take a risk. At the end of each quarter, they want to be seen holding the recent winners. That’s what draws customers, so who can blame them?
An approach of “These shares are pants right now, but we’re sure they’ll come good eventually if you just stick with us” doesn’t cut it.
But you know what? I simply don’t care about the Lloyds share price. Well, actually, I’m glad it’s still down in the dumps — and I hope it stays there.
Income stream
You see, I’m more than happy to buy the shares while they’re cheap and pocket my 6%+ dividends. And I’ll use the cash to buy more shares while they’re still cheap… hoping they will still be cheap.
So, bottom line, what do these results tell me?
They tell me Lloyds is doing fine, raking in cash, and paying great returns to its shareholders. And more share buybacks should boost future per-share returns too.
Of course, the market might be right and I might be wrong. It wouldn’t be the first time, and not the last for sure.
But with the long-term cash return prospects I think I’m seeing here, I’ll take the risk.
