Lloyds confirms £535m dividend

It's taken more than six years, but Lloyds Banking is paying dividends again. True, it's only 0.75p a share, but the lender couldn't have done it without a big increase in profits, which duly came, mainly through cost cuts and lower impairments. It's why the bank, still partly owned by the taxpayer, has rewarded senior management with lucrative share deals.

Lloyds made an underlying profit of £7.76 billion in 2014, up 26% from £6.17 billion the year before. Impairments fell by 60% to £1.2 billion and costs came down by 2% to £9.4 billion. Including an extra £800 million of payment protection insurance (PPI) provisions in 2013 and last year's £710 million pension credit, statutory pre-tax profit surged fourfold to £1.76 billion.

Better margins of 2.45%, up 33 basis points, helped net interest income jump by 8% to £11.8 billion, and net interest margin is tipped by Lloyds to improve by around 10 basis points in 2015. However, other income - this includes a hit to insurance income from changes in the pensions and annuities markets, weakness at the debt capital markets and financial markets businesses, lower valuations in the private equity business, and business disposals - fell by 9% in 2014 to £6.6 billion. Lloyds says it should be "broadly stable" this year.

And for all his hard work, boss António Horta-Osório has been awarded shares worth £4 million as part of a long-term incentive plan. That takes the Portuguese banker's pay and perks for 2014 to £11.5 million, up from £7.5 million in 2013. Finance director George Culmer more than doubles his package to £5.8 million and head of risk Juan Colombás, a former workmate of Horta-Osório's at Santander, is on £5 million.

Elsewhere in the numbers, the post-dividend Common Equity Tier 1 (CET1) ratio - a key measure of a bank's financial strength - increased to 12.8%, evidence that Lloyds has seriously de-risked the business. The leverage ratio rose to 4.9% from 3.8%, and tangible net asset value (TNAV) is up to 54.9p per share from 48.5p.

"The impairment story offers huge relief with the Q4 impairment charge down to just £183m (15bps) vs consensus of £400m, with, we think, a first (£60 million) Irish write-back in Q4 2014," says Investec Securities.

"With a CET1 ratio of 12.8% and, we believe, further capital-accretive legacy run-off ahead, of far greater importance to our investment case is our belief that the dividend should comfortably climb to 5p by 2017e, representing a prospective yield of 6.4%."

Lloyds traded above 80p Friday for the first time since early December, although the move was hardly convincing and the shares are back in the 70-80p range where they've been for almost a year now.

"Lloyds are ticking all the right boxes for investors with a return to profit and dividends," says Mike McCudden, Interactive Investor's head of derivatives. "But on the flipside, the misery endures for RBS as the Swiss arm of their private bank Coutts is under investigation for allegedly helping clients evade tax."

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