Gordon robbed us shareholders in Lloyds Bank when he persuaded Lloyds TSB (as it then was called) to buy HBOS in 2008. That led to some £20 billion of government (taxpayers) money being injected into the enlarged bank to keep it solvent. Now George is giving us a chance to get some of our money back and not a pre-election bribe, unusually.
Unlike the flotation of Royal Mail, there is already a transparent price for Lloyds and with a 5% discount and a 10% extra shares being awarded after a year George’s offer is enticing. He has also removed a running sore by putting a limitation on PPI claims. Historically banks have paid good dividends and it would be reasonable to expect Lloyds to pay out at least 4% soon; an improvement on the 1.35% yield on Premium Bonds, albeit the latter is tax free.
But if you’re a greedy dividend hunter fed up with low interest rates you may want more. I have recommended Investment Trusts (What Does It Cost To Have Your Money Managed? 4th September, 2015) where there are yields of 4% and in that post I cautioned against picking individual stocks. But I can try and tempt you.
How about almost 8% from a FTSE 100 company? Tempted? Try a little Royal Dutch Shell. Trading at around £16 they yield 7.7% on an undemanding P/E of 11.5. There is a risk that the dividend will be cut and there are unforeseeable factors such as an oil spill or a geopolitical event that could threaten their production.
Back to banks. HSBC, trading at about £5 on a P/E of 9.4, yields 6.7%. Maybe that is a guide to the sort of yield you might see from Lloyds, or maybe HSBC will cut their dividend. Picking individual stocks is risky but buying unfashionable ones when they are cheap improves our chances.