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Carla Pasternak's Premiere Issue of High-Yield International Just
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Income expert Carla Pasternak's debut issue of High-Yield
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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The Foreign Bank
with an 8.4% Yield |
Published:
May 5, 2008
Lloyds TSB (NYSE: LYG, $35.84) is the U.K.'s
fourth-largest bank by market capitalization. It is not related
to the famous insurer with a similar name.
Lloyds has three main divisions: U.K. retail, insurance and
investments, and international banking. The U.K. retail division
has 2,000 branches and 15 million customers in England, Scotland
and Wales. The division provided more than 45% of the bank's
pre-tax profit in 2007, as customer lending grew +6% and
customer deposits +18%. Overall, the bank's profits increased
+6% in 2007.
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While Lloyds has not emerged unscathed from the credit crunch,
its losses have been relatively minor compared to some
competitors thus far. It took about US$550 million in
write-downs in the fourth quarter.
Despite these write-downs, the bank retained a Tier 1 capital
ratio of 8.2%, well above the 6% a bank should have to be
considered well-capitalized. It is also noteworthy that its loan
losses provisions were virtually static between 2006 and 2007,
dropping from 0.83% to 0.82%.
Lloyds pays semi-annual dividends in March and August. In the
last 12-month period,
it made payments of $1.946 and $0.912 for a total of $2.858,
giving the stock a trailing yield of 8.0%. When
Lloyds announced 2007 earnings in late February, it also hiked
its 2008 payout by +5%, meaning it should distribute
approximately $3.00 to U.S. investors. That gives it a forward
yield of 8.4% of today's selling price.
Despite all of Lloyds positives, there are clearly risks
involved. Economic growth in the U.K. is slowing, and housing
prices are beginning to weaken. In late March, in an apparent
move to discourage demand, Lloyds increased rates on some of its
key mortgage products. This increase came despite the Bank of
England twice lowering its key interest rate by a quarter point
since December 2007 -- from 5.25% to 4.75%.
There is also currency risk to be aware of. That's because
dividend payments are calculated in the British pound and then
converted into U.S. dollars at the current exchange rate.
Since
September, the pound has declined from about 2.09 to a U.S.
dollar to around 1.98. That equates to a -6.7% reduction in the
value of your dividend payments.
Despite the risks, Lloyds is a very strong bank with a solid
forward yield of more than 8% and good growth prospects.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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