Lloyds future dividend values

AndyGB_2

Hi

I currently hold 19,600 Lloyds shares that I've bought over the past year to 18 months. Over that time they've increased in value by about 100% and are worth in the region of £14k.

BUT I also have accrued a lot of debt over the same period (holidays (£6k), buying the shares in the first place (£7k) and generally overspending etc. This is on overdraft, loans etc so interest rates vary from 7.5 to 10 %

Rather then sell the shares to help pay off the debt the plan is (or was) to hold onto them until Lloyds start paying dividends again in 2012. Then use the dividend income to pay off debt and that way still have the capital of the shares available if needed and still have the dividend income when the debt has been repaid. I don't have any problems servicing the debt as it stands.

BUT, and this is where I would like peoples views, I have based my assumption of dividend payouts on the pre-merger levels of both HBOS and LTSB, but being slightly reduced. So for example in 2005 LTSB paid a dividend of 34p and HBOS 36p. With the rights issues etc I would imagine there are approximately double the shares in existence for the new group so, I have calculated that all things being equal a dividend of 30p is probably 'doable' (maybe not in 2012 but in later years certainly). That would give me just under £6k a year.

So what do people think ? Is that level of dividend payment over the top ? Am I right in holding on to the shares and waiting for dividend payments to get rid of the debt over a couple of years or should I sell them now and clear it ?

Cheers

Andy

opinions4u

The bank still needs to buy out its major shareholder, HM Government.

One way of achieiving this over time would be via a share buyback. So rather than paying large dividends, there would be a sense to paying smaller ones and using excess cash to cancel (with agreement) government owned shares.

I would make the very safe assumption that market assumed growth and income potential post-Credit Crunch will be significantly lower than pre-Credit Crunch.

As such, dividends will be much lower.

mark5

If the share price does not rise then the dividend yield would be in excess of 40% to give £6000.

AndyGB_2

Thanks for the thoughts. I must admit I was thinking that 30p would be optimistic, hence the question. Halving that would still give £3k a year and it won't cost me that much to service the debt for the period I would need to, so I will probably keep hold of them. Or do people think the dividend would be even lower ?

Something I didn't mention is that as an employee I'm also putting £250 a month into a sharesave scheme (priced at 47p), which will mature in Apr 2013. So will almost double my holding at that point.

CLAPTON

it would be unthinkable that while they still owe the taxpayer any money that a dividend could be above 3 or 4 % so lets say 4% of 70p i.e. 2.8pence per annum

cashbackproblems

Well Barclays who are in a much better position than Lloyds are still only paying 1/2p in dividends compared to their pre recession value of 20p+.

I think lloyds will be at the same level so you wont generate as much as you think you will in dividends. I sold out of lloyds pre rights issue as i foresaw this problem and wasnt going to hold for 2yrs not generating any interest.

AndyGB_2

Thanks for that. I'm not an investor as such (just an employee who thought the price was very low and so piled in, mind you I also did the same with HBOS so you can guess how well that worked out !) so don't really understand how dividends etc are calculated, hence my wildly optimistic thoughts :-)

Cashback - I hadn't thought to see what other banks dividends were historically compared to now, thanks for that !

mark5

AndyGB wrote: »

Thanks for the thoughts. I must admit I was thinking that 30p would be optimistic, hence the question. Halving that would still give £3k a year and it won't cost me that much to service the debt for the period I would need to, so I will probably keep hold of them. Or do people think the dividend would be even lower ?

Something I didn't mention is that as an employee I'm also putting £250 a month into a sharesave scheme (priced at 47p), which will mature in Apr 2013. So will almost double my holding at that point.

I understand why your doing the sharesave scheme at that price but you seem very exposed to one company.

My in-laws, hes an ex BP employee have a silly amount of money invested in BP shares, and took a right hammering with the oil spill.

AndyGB_2

mark5 wrote: »

I understand why your doing the sharesave scheme at that price but you seem very exposed to one company.

My in-laws, hes an ex BP employee have a silly amount of money invested in BP shares, and took a right hammering with the oil spill.

I agree, but other than the HBOS shares I bought I've never owned any shares directly. The reason for that is that I am comfortable that I know the company (obviously not as well as I thought with HBOS) and we have the share price on the front page of the intranet at work, so I'm always watching it !

I did originally buy them for the speculative capital gain, but then when I realised how much debt I had accrued that's when I started to think of them as a possible income. AKA getting greedy :-)

sabretoothtigger

Rather then sell the shares to help pay off the debt the plan

The most obvious answer is often the best but if you are going to gamble debt vs growth I would suggest reducing the risk by securing a fixed rate of interest on your debt.
Its almost stated as impossible that rates could rise but 5 or 10% in a few years is possible or even quite likely so rather then speculate further on what you've paid out for, secure the other end of the deal as this is likely your greatest limit to your profits not the company dividend

Dividends are fairly irrelevant, if lloyds never paid out again it wouldnt really limit your profit so dont worry about it. When a company keeps cash for itself, the share of that company and its cash is more valuable and vice versa.

The debt side is your greatest detail to profit or not at the moment, if you fix debt cost to 7% say and inflation goes above that produces a net gain for you. Thats quite unlikely but it would make a nice surprise depending on your actions now

Also take a look at iii for a history and graph for number of lloyds shares issued over the years then multiply that by the price over the years.
Lloyds was half the size of hbos when it took it over

opinions4u

mark5 wrote: »

I understand why your doing the sharesave scheme at that price but you seem very exposed to one company.

My in-laws, hes an ex BP employee have a silly amount of money invested in BP shares, and took a right hammering with the oil spill.

I knew that I should get rid of my HBOS shares but never quite got round to doing so.

I took a £40k paper loss for not doing what I knew I should do. That hurt.

OP: Milk the Sharesave by all means. I beleive they also do a Sharematch scheme where for £30 a month you get tax relief and matching shares - so milk that and make that one your long term exposure to your employer. Dispose of those when the tax liability expires.

When the Sharesave matures, assuming the shareprice is favourable, buy all you can and immediately dispose of them (up to your CGT limit). Then find a more balanced way of investing the proceeds.

Historic dividend yields are in the past. They mean nothing in the brave new world. Huddersfield Town were English Champions three years running. But I wouldn't back them to win the Champions League.