Lloyds Banking Group PLC (LSE:LLOY) could be ready to hand as much as £2bn back to investors next week as prelude to further bumper cash pay-outs going forward.
That at least is the conclusion of the number crunchers at Deutsche Bank in a note published earlier this week.
“On capital return, we expect Lloyds to announce a £1bn buyback and 1.5p dividend,” it said.
Adding both the divi and the cost of the repurchase, the total returned to Lloyds shareholders would be in the order of £2.065bn.
However, the analysts at the German bank reckon Lloyds’ largesse won’t stop there.
They reckon as well as maintaining a £1bn annual buyback, they expect the dividend pay-out ratio to be 40%-45%.
The pay-out ratio is the percentage of earnings per share distributed as dividend payments.
In the case of Lloyds, the current consensus forecast is for 6.4p of EPS this year and 6.56p in 2023.
In the most optimistic scenario (a 45% pay-out ratio plus the buybacks), Lloyds would hand back around £6.1bn over 24 months.
Deutsche described its Lloyds note as a ‘catalyst call’. What it meant by that is it thinks the market may be underplaying the potential of the black horse bank.
Its ‘much-anticipated’ refreshed business plan next Thursday, which will be coupled with its annual results, will spell out its financial strategy for the coming years, including the dividend and buyback policies.
Deutsche reckons the Lloyds management could target a return on tangible equity of greater than 12% from 2024. That would be superior to any of the local competition and ahead of the 11% consensus figure.
“The shift in business mix has become fundamentally more profitable for Lloyds and the economic backdrop is more favourable than in the past 10 years,” the German bank said in its note.