With the results season over for the Big Five listed banks, we are getting a better idea of what to expect in terms of dividends.
The Prudential Regulation Authority (PRA) lent on the banks a year ago as the coronavirus pandemic got its teeth into the UK economy to persuade them to suspend dividend payments but in December last year, it eased the restrictions.
The regulator stipulated it would “expect to be satisfied that any distributions would not create excess vulnerabilities to stress for a given bank or impede its ability or willingness to support households and businesses.”
Not all of the banks were convinced of the need to suspend dividend payments (and share buybacks) in the first place so you can bet many of them were champing at the bit to be as generous as they dared so let’s have a look at what they actually paid and how it compares to pre-suspension payments.
The market was expecting the dividend to be bigger and the size of the share buyback – £700mln – suggests there is scope for the pay-out to be cranked up when circumstances permit.
The bank more than doubled provisions for bad debts and if it turns out it overcooked this number, leeway will be there for a bigger payment.
Prior to the pandemic, Barclays paid a dividend of 7p. If it returns to that level of payment, then at its current share price it would yield a handy 4.2%. Broker forecasts suggest the projected yield for this year will be closer to 3.2%.
Asia-focused bank HSBC Holdings PLC (LON:HSBA) makes things a bit difficult for UK investors by declaring its dividends in US currency and paying them quarterly.
In its full-year results statement for 2020, it declared a dividend of 15 cents, which is about 10.75p. Analysts had expected a pay-out of around 10.1p.
Before the pandemic, the bank’s quarterly dividends were 10 cents, which was equivalent to a bit below 8p a quarter in 2019.
Based on that, a payment of 15 cents looks like a step-up. It is tempting to extrapolate that dividend to a full-year pay-out of 60 cents, which is roughly 43p, giving an unlikely dividend yield of exactly 10% as the shares currently trade at around 430p.
Broker forecasts, which might be subject to revision following HSBC’s recent results, suggest a yield of 3.7% is nearer the mark.
The bank said it will target a payout ratio of between 40% and 55% of reported earnings per ordinary share (EPS) from 2022 onwards.
Lloyds Banking Group PLC (LON:LLOY) declared a final dividend of 0.57p, which was the maximum allowed under the PRA’s guidelines.
The board said it intends to resume its progressive and sustainable dividend policy once the PRA takes the brakes off.
Before the pandemic, it paid a dividend of 3.26p (in the 12-months to end-July 2019).
Broker forecasts suggest a yield of 4.2% is in the offing in the coming 12 months.
Never mind the coronavirus pandemic, NatWest Group PLC (LON:NWG) has barely recovered from the financial crash of 2007.
It paid no dividends between 2008 and the second half of 2018 but between August 2018 and August 2019 it declared dividends of 3.5p and 2p plus two special divis worth 19.5p in aggregate.
Its return to dividend payment in 2021 was more than nominal at 3p and brokers expect total dividends this year will push the yield up to 5.4%.
NatWest itself said it intends to maintain ordinary dividends of around 40% of the attributable profit.
Its dividend in respect of 2020 was nine cents.
“Our intent is to operate within our 13-14% target CET1 [common equity tier] range and we will seek approval to return to shareholders capital that cannot be deployed profitably within the business through a mixture of dividends and share buy-backs,” the board said.
Based on broker forecasts for 2021, it trades on a prospective yield of 2.7%, making it ostensibly the stingiest of the big five banks.