Dividends

Note:

Interim 2020 - In order to help the Group serve the needs of businesses and households through the extraordinary challenges presented by the COVID-19 pandemic, the Board decided that until the end of 2020 we would undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares.

Final 2019 - In response to a request from our regulator, the Prudential Regulation Authority, and to preserve additional capital for use in serving our customers, the Board agreed to cancel payment of the final 2019 dividend in relation to ordinary shares.

Interim 2009, Final 2009, Interim 2010, Final 2010, Interim 2011 - The Group was prevented from paying dividends on its ordinary shares as a result of the European Commission state aid review.

Final 2008 - The Group was prevented from paying dividends on its ordinary shares whilst the HM Treasury preference shares issued as part of the HM Treasury recapitalisation scheme were in existence.

Lloyds Banking Group plc (the ‘Company’) makes available a dividend reinvestment plan (‘DRIP’) to shareholders who wish to use their cash dividend to purchase shares in the Company.

What is the DRIP?

The DRIP is a low cost way to use your dividend payments to purchase additional shares in the Company, enabling you to increase your shareholding in a convenient and cost-effective manner.

The DRIP is operated by Equiniti Financial Services Limited (‘EFSL’). Rather than receiving a dividend cheque or having a bank account credited with a cash dividend payment, EFSL will use the dividends payable to DRIP participants to purchase shares on their behalf in the market, under a special low-cost dealing arrangement.

The fees and charges are located in the DRIP Terms & Conditions.

Joining the DRIP

Any shareholder wishing to join the DRIP should contact EFSL for an application form, using the contact details provided below.

Leaving the DRIP

Any shareholder who is a participant in the DRIP and who wishes to withdraw from the plan should contact EFSL for a revocation form, using the contact details provided below.

DRIP Invitation Booklet

The DRIP Invitation Booklet explains how the DRIP works and what it means for shareholders, including some frequently asked questions.

DRIP Terms & Conditions

The DRIP Terms & Conditions can be accessed here. They are also available in hardcopy through EFSL using the contact details provided below.

Online: www.shareview.co.uk/info/drip

Tel: +44 871 384 2990

Textphone: +44 871 384 2255

Calls to 0871 numbers are charged at 8p per minute from a BT landline, calls from mobiles and other networks may vary.

Each of these documents should be considered by shareholders before making any decision regarding the DRIP. Participation in the DRIP is optional and these documents do not constitute advice to join, continue to participate in, or withdraw from the DRIP. If you have any doubt about the action you should take, it is recommended that you consult your stockbroker, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000.

The final ordinary dividend of £0.0133 per share seems very low, given your excess capital position, and the almost 11% drop in the share price on the day of the announcement seems to reflect dividend disappointment. Why wasn’t it higher, and/or a special dividend paid? 

• We note that at 2p/share, the total FY 2021 dividend represents a yield of over 4%, which compares favourably to the FTSE100 average yield. This was also in line with the market’s consensus expectations, which are available on our website.
• The Board needs to manage the different preferences of the Group’s investor base and hence part of the capital return in respect of 2021 was in the form of a newly-announced £2 billion share buyback (this is the preferred form of excess capital return for many of our institutional shareholders, particularly given the share price trading below book value), bringing total capital return in respect of 2021 to up to £3.4 billion, equivalent to 4.82p per share. 
• Regarding share price performance on the day of results announcement, it is worth noting that the FTSE 350 banks index also fell by c.7% on the day, reflecting wider geopolitical concerns given the Russian invasion of Ukraine. We think that the underperformance of our share price versus peers reflects increased cost expectations given increased investment as part of our new strategy launch, which should however in turn generate higher revenues and shareholder returns over 2024-26.
• It is worth noting that the share price increased c.7% on the day following results.

Is the Group still paying quarterly dividends? 

• No, the Group has reverted to twice-yearly dividends (this was announced at the HY 21 results) due to a number of reasons
  - simpler capital planning – having fewer distribution points makes capital planning simpler and maintains average capital levels through the year,
  - simplicity – most FTSE100 companies pay half yearly dividends, and this is easier for investors as it means less printing/cashing of cheques,
  - sustainability – reducing the amount of mailing/printing of cheques for what would generally be small values. 
• In practice, this is simply a question of timing and makes no difference to the overall quantum of capital returns that an investor may expect.

How does your final dividend of £0.133 per share relate to your progressive dividend policy when it is much lower than the previous dividend? 

• The Group is committed to a progressive and sustainable dividend policy. You can therefore expect to see progression in the dividend per share in 2022 and beyond, in line with this policy, from the starting point of total dividend of 2p per share paid in FY21.
• The ordinary dividend alone constituted a yield of 4% for 2021, while it would be around 10% including the share buyback, both comparing favourably with other FTSE 100 stocks.

A few years ago it was stated the Group would pay approximately 50% of statutory profits in dividends. A total dividend payment of 2p is not anywhere near 50% of statutory profits for 2021. Has the bank changed its dividend policy? 

• The Group has not given a specific payout ratio target but is committed to a progressive and sustainable ordinary dividend policy, whilst maintaining the flexibility to return surplus capital through buybacks or special dividends. Given the total ordinary dividend of 2p per share and the intended ordinary share buyback, equivalent to up to 2.82p per share, the total capital return in respect of 2021 will be up to 4.82p per share, which is equivalent to £3.4 billion or c.10% of current market capitalization. 
• It is worth noting that 4.82p per share equates to 64% of our earnings per share of 7.5p.

Two years ago the Group dividend was postponed at the request of the Bank of England because of Covid-19. When will this ‘postponed’ dividend be paid?

• The Bank of England requested UK banks not to pay dividends due to Covid-19. Accordingly, on 1 April 2020 the Group announced that it would suspend dividend payments. Furthermore, the Board decided that until the end of 2020, the Group would undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks. The FY19 final dividend was therefore cancelled and we never made any statements about it being postponed. 
• Once this ban was lifted, the Group was then able to reintroduce dividend payments with a final dividend of 0.57p at the end of 2020. We then reinstated a progressive and sustainable ordinary dividend policy with an interim ordinary dividend of 0.67p per share announced at the 2021 half year results in July 2021.  The additional capital retained has in part enabled us to announce the share buyback of £2 billion. 

Why are you buying back shares when you just hold them in Treasury instead of cancelling them and then issue shares to employees so that it does not reduce the shares in issue?

• When we buy shares in the market, they are cancelled and not held in treasury; any issuance is an entirely separate transaction and unrelated to the buyback.
• The effect of a buyback is to reduce the total number of shares in issue. It is expected that shareholders who retain their shares in the company will benefit from the share buyback programme as they will own an increased proportion of the total shares in the company and should therefore see an increase in the dividend per share going forward given the reduced number of shares in issue. 
• Our issued share capital fell in 2019 (from 71,790 to 70,713m shares), the most recent year in which we undertook a share buyback. In the event of future share buybacks, you would generally expect our share count to reduce. Share buybacks can be an effective use of excess capital, particularly when the shares are trading below book value. Assuming a £2 billion buyback and a 50p share price, our share count would reduce by 4,000m shares.