A yield of 8pc would make it impossible to ignore Lloyds


However, these are only predictions that can often turn out to be incorrect. But Kevin Murphy of the Schroders fund group, after examining the health of the banks, sees no reason why they can’t go back to the levels they were paying before the Covid strike.

He pointed to Lloyds, which paid out 3.26p per share in the 12 months leading up to the pandemic, despite paying £ 2.9 billion in compensation for badly selling payment protection insurance. Mr. Murphy sees the dividend outlook for Lloyds better than before. “I have no reason why Lloyds couldn’t go back to a dividend of 3p or 4p, which equates to a return on today’s share price of 8.6p,” he added.

More dividend cheers could also come from special payments, according to Rob Burgeman of asset manager Brewin Dolphin, as banks try to distribute the accumulated money that they have not been allowed to pay out. “Banks could pay a special dividend in late 2021 or 2022 that represents accrued profits,” he said.

But the long-suffering bank shareholders will have the feeling that they have been here before. I remember six years ago a fund manager looked at Lloyds’ dividend outlook for 2016, which he calculated as placing the stocks at a 6 percent return. Shares eventually raked in 6 percent that year, but not for the reason he’d hoped as the dividend stayed the same and the share price plummeted after the Brexit vote.

Investors suffered huge losses in both the financial crisis and the pandemic, while the dividends they rely on dried up on both occasions. Even before the pandemic, the banks had failed to fully rehabilitate themselves with investors. The resumption of dividends, the first step in the process, was then marred by rising PPI payments.

Some, like this week’s Rate My Portfolio candidate, have stayed loyal but received little in return. Others who have been burned too often have vowed never to return.

But in a market where high and growing dividends are scarce, banks can no longer be ignored if they keep their dividend promises. Should they do, don’t expect your stocks to stay where they are for long. Prices have a habit of catching up with a rising dividend.

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