2 FTSE 250 7%+ high yielders that could help you retire rich

You might think I’m mad going for a retail sector stock, especially one that has lost 70% of its value since a peak in 2014. That’s what’s happened to N Brown Group (LSE: BWNG), and when you look at several years of declining earnings, you might not be too surprised. 

But retail isn’t dead, it’s just, well, if not resting, going through a transformation. And what’s going to emerge will surely be very different from the old “traipsing round the shops” model of old.

I reckon N Brown, owner of a number of brands including JD Williams, Jacamo and Simply Be which cater for plus-size customers, is ahead of the curve (pun intended).

The past few years have seen the company ditch its old mail-order business and move entirely to online shopping. Judging by the success of companies like Boohoo.com and the struggles faced by the high-street stores of Marks & Spencer, that’s surely the way to go.

N Brown does actually own 20 bricks-&-mortar stores, but in its last full year they only contributed 2% of group revenue (and lost money). The company is currently considering closing these stores — an obvious good move, in my view.

I reckon weak sentiment has pushed the shares too far down now, and with earnings expected to start rising slowly again, we’re looking at P/E multiples of under eight. Oh, and forecast dividend yields of almost 8% too.

The dividend might perhaps come under pressure, but analysts are actually predicting a modest rise by 2020. I think N Brown is a risk worth taking.

Safe as the proverbial?

Confidence in housebuilders is also starting to falter, though few have seen their shares suffer as badly as Crest Nicholson Holdings (LSE: CRST). From a high of 638p in May 2017, we’ve seen a 35% fall.

That’s partly due to fears that the housing market is slowing down, though I can only see that as a relatively short-term thing — surely an overall flat market for even 20 years would still see housebuilders making attractive profits.

The effect was compounded by first-half results, which showed a 2% decline in earnings per share, and that’s got to have driven away lots of growth investors now that the rampant recovery phase of the industry is coming to an end.

Reality

But here’s the thing… Housebuilders do not need rising house prices in order to make profits. When house prices cool, land prices also cool, and profit margins don’t need to suffer too much.

In fact, that was behind my bullishness on housebuilders back in the early 2000s. House prices were stagnating, and investors deserted housebuilders in their masses. But those canny companies had plenty of cash and were buying up building land at knock-down prices — and for me, that was a sure-fire sign of the boom that was to come.

Let’s get back to Crest Nicholson and its share price valuation. EPS is expected to drop 2% this year, but pick up 8% in 2019.  And dividends are expected to yield around the 8% level this year and next, which is a yield almost to die for. The shares are on a forward P/E of an incomprehensibly low 6.5.

The housebuilding sector is volatile, but I see that as irrationally down to short-term investors. Those of us who know better can do well from our long-term view.

Buy-And-Hold Investing

Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it right away!

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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FTSE 100 high yield stocks National Grid and SSE look like unmissable bargains

The utility sector has traditionally been the go-to place for high-yield, low-risk defensive dividend stocks. The following two giants certainly score on the yield front, but they also carry more risk than you might expect.

On the grid

UK and US pipelines and pylons giant National Grid (LSE: NG) currently offers a forecast yield of 5.7%, with cover of 1.2. With the Bank of England holding interest rates at 0.5% yet again this month, that is an electric income. The downside is that share performance has been disappointing with the stock down more than 18% in the last year, and trading just 12% higher than five years ago. Many investors have been spooked by its falling earnings forecasts, which my Foolish colleague Roland Head examines here. Others may see the recent dip as a tempting entry point.

You must beware of potential problems. One concern is that Ofgem will squeeze National Grid inside a tighter regulatory structure. There is also the distant threat of a future Jeremy Corbyn-led Labour government nationalising the company, with compensation uncertain.

National power

The company, which has a market cap of £27.64bn, also shoulders the burden of investing heavily in maintaining and developing its infrastructure. Debts rose £3.7bn to £23bn in the year to 31 March, and this should increase to around £25.5bn next year as it continues to invest in the business.

Operating profit fell 8% to £3.5bn last year, although this was mostly due to adverse timings and major storms in the US. National Grid remains a rock solid business, and management is committed to increasing its full-year dividend by at least RPI inflation. City analysts forecast the dividend will hit 5.9% by 2020 and although earnings per share (EPS) may drop 4% in the year to 31 March 2019, they are expected to rise 7% the year after. Trading at 14.5 times earnings National Grid still looks a dividend powerhouse to me.

High energy

Energy company SSE (LSE: SSE) offers an even more compelling forecast yield of 7.3%, with cover of 1.3. Only FTSE 100 giants Centrica and Vodafone offer more generous income.

SSE has been a top yielder for years, and management has given investors plenty of forward visibility as well. Last year’s 3.7% hike to 94.7p per share will be followed by a further hike 3% to 97.5p in full year 2018/19, but the payout will be re-based at 80p after the Npower takeover has been completed. For the three years after that, it should “at least” keep pace with RPI, and that looks sustainable

Debt issue

Rewarding loyal investors is SSE’s first objective, although it has a lot of it on its plate, with a full-scale CMA investigation of the Npower merger and the loss of 430,000 customers last year. It must also fund another £6bn of capital and investment expenditure, while net debt is expected to peak at around £10bn, before falling to around £9bn by 2023.

Near-term earnings growth projections look patchy but the stock does trade at a juicy valuation of just 10.9 times earnings, which reflects many of the current uncertainties. The income may slip from today’s giddy heights, but should still sizzle.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Just how safe is BT’s 7% yield?

Man holding magnifying glass over a document

Over the past two years, shares in BT (LSE: BT.A) have plunged by nearly 48%, excluding dividends, a tremendous decline in value for one of the UK’s premier companies. What’s more, over the period, the stock has underperformed the FTSE 100 by a staggering 63%!

However, BT now supports one of the most attractive dividend yields in the FTSE 100. At 7.1%, there are only eight other firms in the blue-chip index that offer a higher level of income.

But the question is, how safe is this payout? Can BT continue to afford to meet its obligations to investors? Those are the questions I plan to answer in this article.

Cash is king

The first place I like to look when evaluating the sustainability of a company’s dividend distribution is its cash flows. Cash flows are much more representative of a business’s financial position than the profit and loss account, which can be influenced by non-cash adjustments that reflect negatively on its financial situation.

For example, for the financial year ending 31 March, BT reported a net income of just over £2bn. However, after stripping out non-cash items, the group reported operating cash flow from operations of £5bn. After deducting capital spending of £3.4bn from this figure, BT had £1.6bn free to return to investors, which was just enough to cover total dividends for the year of 15.3p per share.

Pressure is building

So, based on last year’s figures, BT’s dividend does look to be sustainable. Unfortunately, the company’s financial situation is only going to get harder going forward. And supplementary pension, as well as capital spending obligations, could put pressure on shareholder payouts. 

One prominent feature in the company’s accounts is the sizeable net debt, running close to £9.6bn, and pension deficit of around £11.3bn. To get the latter under control, BT has agreed with the trustee of the pension scheme to make payments of £2.1bn by March 2020, pay around £900m a year for 10 years after that, and raise around £2bn in debt for the pension fund by issuing bonds. 

Further, the group will provide additional payments to the pension scheme if shareholder distributions exceed a threshold, which has been set at dividend growth of 10% a year, and a further £200m per year for share buybacks. 

As well as these additional pension funding requirements, BT has been pressured to devote £3.7bn to upgrade its mobile and fibre networks over the next few years. 

Cash crunch 

Increased capital spending and pension payments are going to weigh on BT’s cash flows. Some of the additional spending will be offset by the firm’s £1.5bn of cost savings management is targeting from job losses, but there’s only a finite amount of cash to go round. 

With this being the case, even though management has stated that the current dividend level is sustainable, I’m not so sure. 

Cutting the payout by 50% would free up £750m a year in cash, enough to make a sizable dent in BT’s debt mountain of £9.6bn over several years. A lower level of debt would, in my opinion, significantly improve the group’s profile as a long-term income investment.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

3 cheap 8%-yielders you can’t afford to miss

Homebuilder Persimmon (LSE: PSN) currently holds the title of the highest yielding dividend stock in the FTSE 100, making it one of the best dividend stocks on the market today for income seekers.

Since its near-death experience in the financial crisis, Persimmon has been on a mission over the past decade to rebuild its reputation. 

As part of this goal, the group has introduced a Capital Return Plan, which was initially targeting a surplus capital distribution to shareholders of £6.2 per share between 2012 and 2021. But, thanks to better-than-expected trading, it’s been increased by 110% to £13.00 per share to 2021. 

So far, the group has only distributed £6.20 with a balance of £6.80 remaining. If it hits this target, Persimmon will return 27% of its current market value between today and 2021 (9% on an annual basis).

With cash on the balance sheet of £1.3bn, it certainly looks to me as if the group has the financial firepower to hit this target. At the same time, the stock trades at a highly attractive forward earnings multiple (P/E) of 9.4. So, Persimmon is both an income champion and value stock.

Look past the problems 

Galliford Try (LSE: GFRD) is another dirt-cheap income stock I believe could make a great addition to any portfolio.

Even though analysts have revised down their expectations for growth in 2018 and 2019, Galliford’s earnings per share are still expected to grow 12% in 2018 to 146p, and register a small, positive expansion next year. 

Based on these estimates, shares in the homebuilding and regeneration group are trading at a forward P/E of 6.3 — the lowest valuation the market has awarded the company in over five years.

That said, analysts are expecting a slight downward revision of the group’s dividend this year. The City’s target is 77p, down 11% from last year’s 86p. 

Still, even at the lower level, the payout is equivalent to a dividend yield of 8.4% and it’s also covered 1.9 times by earnings per share, leaving plenty of headroom if earnings contract.

As my Foolish colleague Harvey Jones recently noted Galliford isn’t without its problems, but management seems to have operational issues in hand, and the issues certainly don’t seem to justify the rock-bottom valuation.

Margin of safety 

Shares in transport group Stagecoach (LSE: SGC) have taken a hammering after it was revealed that the company, and its partner Virgin Group, have taken a loss of more than £200m on their East Coast franchise, which operates intercity services between London Kings Cross and Scotland. 

Now, analysts are expecting nothing but pain for the group for the next few years. City analysts reckon EPS could fall 18% in the year to 30 April, then by 11% and 9% in the two years that follow

While it’s difficult to feel enthusiastic about Stagecoach’s falling earnings, the company’s dividend yield provides some solace as it currently stands at 8.3%. 

And even though profits are set to slide, even the most pessimistic analyst forecasts suggest dividend cover will remain above 1.5 times for the next two years. With this being the case, it looks as if the payout is here to stay for the foreseeable future. 

Moreover, while the company might not have the brightest growth outlook, the stock’s valuation of 7 times forward earnings (P/E) offers a wide margin of safety in my view.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

3 top picks for a FTSE 100 high yield starter portfolio

Dividend investing is both easy to comprehend and — assuming payouts are fed straight back into the market — a highly effective way of growing your wealth over time. It’s also ideal for those who feel confident enough to stock pick, but who’d rather not spend every waking minute glued to their laptop, sweating about which direction the market might head next.

With this in mind, here are three of my favourite picks from the FTSE 100. All offer excellent dividend yields and all are available to buy at very reasonable prices.

3 of the best

Shares in ITV (LSE: ITV) have been on solid form of late, rising 15% of the back of May’s reassuring Q1 trading update.  

Total external revenue rose 5% to £772m in the three months to the end of March, thanks in part to excellent growth at ITV Studios and online (up 11% and 41%, respectively). Encouragingly, this kind of performance is expected to continue over the full year. 

Clearly, ITV is not a risk-free investment. Aside from companies reducing their advertising spend (or moving away from mediums like television completely), an early exit of England from the World Cup won’t be great for business, even if the popularity of Love Island may help cushion the blow. 

With highly-rated ex-easyJet CEO Carolyn McCall now at the helm, a history of generating excellent returns on the capital it invests, and a well-covered 4.7% yield, I continue to rate the shares as a buy on just 11 times forecast earnings.  

Power provider National Grid (LSE: NG) has long been a favourite among income investors for good reason. Its virtual monopoly means that payouts, while not increasing rapidly, are about as predictable as you can get.

May’s full-year results reflected on “strong operational and financial performance in 2017/18” with the company continuing to make “significant progress” with its US operations. 

National Grid is expecting growth “at the top end of the 5-7% range for the medium term, and at least 7% in the near term”. Importantly for dividend hunters, this should ensure that payouts keep rising (albeit modestly). 

Forecast earnings per share of 57.5p for the current year leave National Grid on a P/E of a little over 14. Taking into account its 5.6% yield and the fact that it’s less exposed to political influence compared to utility companies such as Centrica, that looks decent value to me.

Tobacco giant and Neil Woodford-favourite Imperial Brands (LSE: IMB) is another stock whose share price has bounced back to form over recent weeks. That said, the stock is still down almost 35% on the highs reached two years ago as investors grow wary over falling sales.

Although threatened by the prospect of increased regulation, broker Liberum believes that the tobacco industry is now trading at the widest discount to the European Consumer Staples sector in 15 years. With Imperial stock for sale at just 10 times forecast earnings, it certainly looks like a lot of bad news is already priced in. 

What’s more, management appears to be doing all the right things to ensure that the company can maintain its tradition of consistently hiking its quarterly payouts, including attempting to dispose of superfluous parts of the business. 

Ethically, the £25bn-cap won’t be to all investors’ tastes, but its stock comes with a huge 7% yield, making it one of the biggest payers in the FTSE 100.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is GlaxoSmithKline a high-yield dividend star or a dangerous dog of the FTSE 100?

You can get decent investing results by collecting dividends from high-yielding stocks and reinvesting them to compound your gains. However, that strategy only works well as long as the stocks you buy and hold have sustainable dividends.

Is the 5%-plus dividend yield for pharmaceutical giant GlaxoSmithKline  (LSE: GSK) sustainable? This table summarises the recent financial record:

Year

2013

2014

2015

2016

2017

Net cash from operations (£m)

7,222

5,176

2,569

6,497

6,918

Profit before tax (£m)

6,647

2,968

10,526

1,939

3,525

Adjusted earnings per share

108.4p

95.4p

75.7p

102.4p

111.8p

Dividend per share

78p

80p

80p

80p

80p

Cash flow generally supports profits well. But neither cash flow, earnings or the dividend have moved up over the past four years, suggesting that GlaxoSmithKline is struggling to grow.

Grinding on

Back in April with the first quarter results report, chief executive Emma Walmsley told us that the company made good progress in the first part of the year, with sales growth across all operational businesses. Recent product launches included Shingrix, Trelegy and Juluca, which, along with other new releases, are contributing to improvements in the firm’s adjusted operating margin. 

However, the problem of patent expiry still dogs the firm and sometimes it seems as if two steps back follow every two steps forward, as the recent stagnant dividend attests. The firm saw “increased pricing and competitive pressures” in the US inhaled respiratory market during the first quarter and expects a decline of around 30% in sales of Advair in the US during 2018. Overall, the directors think earnings per share will grow 4-7% this year, suggesting some progress, although probably not enough to get the dividend moving up again.

The company has agreed with Novartis to acquire its Consumer Healthcare business for $13bn, subject to shareholder approval. The directors said the acquisition will “improve future cash generation and support capital planning” with the aim of strengthening the pharmaceuticals business and the research and development (R&D) pipeline. I reckon boosting that R&D pipeline is the firm’s best hope for getting the dividend to expand in the future, so the Novartis move could mark a turning point for GlaxoSmithKline.

GlaxoSmithKline’s dividend sustainability score

Let’s look at three different features to judge whether the company’s dividend seems sustainable with each indicator scored out of a possible five points:

  1. Dividend cover: adjusted earnings covered last year’s dividend almost 1.4 times. 2/5
  2. Cash flow: generally, cash flow covers profits well but has not grown in four years. 4/5
  3. Outlook and trading: recent trading has been good and the outlook is satisfactory. 4/5

Overall, I score GlaxoSmithKline 10 out of 15, which makes me a little cautious about the sustainability of the firm’s dividend, particularly with the ongoing drag from generic competition. The static dividend demonstrates how tough things have been for the firm and I’m not expecting the dividend to rise much over the next year or two. That said, I think GlaxoSmithKline could be a decent stock to hold for very patient investors because of the defensive characteristics of the sector.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

BP, HSBC & Imperial Brands: 3 high yield stocks that could boost your retirement savings

Two hands holding champagne glasses toasting each other with Paris in the background

With interest rates remaining at rock-bottom levels, parking your retirement savings in cash over the long term is not a very sensible idea. With inflation currently running at around 2%-3% per year, your spending power is likely to diminish over time if your money is sitting in cash.

One alternative, is to invest some money in dividend stocks. Of course, stocks are higher-risk than cash, yet with many dividend stocks in the FTSE 100 currently offering dividends yields of 5% or higher, the risk may be worth the reward.

With that in mind, here’s a look at three high-yielding FTSE 100 names that could boost your retirement savings.

BP

BP (LSE: BP) is a popular stock among dividend investors simply because the oil major is one of the best-known companies in the world and is easy to understand. It’s also one of the largest companies in the FTSE 100.

Last year, BP paid its shareholders 40 cents per share in dividends, split over four quarterly payments. At the current share price, that equates to a high yield of 5.4%, which is far higher than the yields on offer from savings accounts right now. Looking ahead, analysts expect similar payments for this year and next.

It’s worth noting that BP’s profits are tied to movements in the oil price, so a collapse in the oil price could affect future dividends. However, BP’s break-even oil price — that needed to cover both capital expenditure and dividends — is around $50/bbl, so there’s a decent margin of safety right now with the oil price above $70/bbl.

HSBC

Another popular dividend stock among UK investors is HSBC (LSE: HSBA). Like BP, it’s one of the largest in the FTSE 100 index.

Last year, the bank paid its shareholders 51 cents per share in dividends. At today’s share price, that also translates to a yield of 5.4%. The bank plans to sustain the dividend at that level in the near term.

One appeal of HSBC is its exposure to high-growth, developing markets in Asia, which provide a platform for growth. In 2017, net loans to Asian customers rose 20% to $426bn, which helped revenue from the region rise 15% to $26bn. With the bank planning to focus its attention heavily on Asia going forward, the long-term story here looks attractive.

Imperial Brands

Lastly, if you’re looking for an even higher yield, check out tobacco manufacturer Imperial Brands (LSE: IMB). The tobacco sector has been out of favour for a while now, and that’s driven share prices down, and dividend yields up, creating a fantastic opportunity for dividend investors.

It’s worth noting that despite the challenges tobacco stocks have faced in recent years, Imperial has continued to increase its dividend payout each year. In fact, it’s now recorded nine consecutive annual 10% dividend increases, which is an incredible achievement, and it plans to keep increasing the payout by 10% per year in the medium term. Last year, the group paid out 171p per share to investors, which at the current share price, equates to a high yield of 6.3%. When you consider that the average cash ISA pays interest of around 1% per year, that yield is hard to ignore.

Of course, there are plenty of other high-yield stocks in the FTSE 100 that could be worth considering. If you’re looking for more ideas, check out the report below.

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Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it right away!

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Edward Sheldon owns shares in Imperial Brands. The Motley Fool UK has recommended HSBC Holdings and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s why Lloyds shares could be the best high yield investment ever

When I buy a high-yield share, I look for two different things. The obvious one is a handsome cash payment every year in the dividend itself, but I also want to see signs that the shares themselves are undervalued and that I could be getting some growth too.

When I bought shares in Lloyds Banking Group (LSE: LLOY) in 2015 at 76p, I thought I saw both. But though I’ve had a couple of years of rising dividends, the share price has actually fallen. At 62p as I write, I’m down 18p on the shares, and I’ve only had about 6p per share in dividends to compensate.

The Brexit vote and the uncertainty it caused for the banking sector had a big impact on confidence for the sector. And I also can’t help feeling that institutional investors might remain wary of the banking sector until the UK government has finally sold off its stake in Royal Bank of Scotland.

End of the tunnel?

But I’m seeing indications that the country’s anti-bank sentiment could be finally turning, and I still rate Lloyds as possibly the best high-yield stock on the FTSE 100 for long-term investors.

Fund managers in the US have been getting a bit bullish about the banking sector recently, after pretty much shunning the business in the wake of the financial crisis. And there are signs of improving optimism here with consensus forecasts coming in with pretty solid buy ratings for our three top UK-focused banks, Barclays, Lloyds and RBS.

Looking at Lloyds itself, recent price targets from analysts are ranging around 80p-90p, indicating that they see an upside of about 35% over the current price. This time last year we were looking at targets averaging around 75p, so that does suggest increasing bullishness.

Even at a price of 90p, Lloyds shares would still be on a forward P/E of a little over 12, which compares favourably with the FTSE 100’s long-term average of around 14. And forecast dividend yields for this year and next would be standing at 3.8% and 4.1%, which I would still find attractive — especially as there are inflation-busting rises on the cards.

As it stands, at today’s price, we’re looking at P/E multiples of only 9.2 this year and 8.4 next, which I reckon would look cheap even without good dividends. And Lloyds is expected to deliver a yield of 5.5% in 2018, followed by 5.9% in 2019.

What dividend-seekers want

In its full-year results for 2017, Lloyds reiterated its commitment to “progressive and sustainable ordinary dividends whilst maintaining the flexibility to return surplus capital to shareholders.” And we’ve already started seeing the second part of that in action. In March, the bank commenced a share buyback programme and is expected to repurchase up to £1bn in shares.

To me Lloyds looks like a strongly cash-generative company which is paying good dividends and is committed to returning capital to shareholders whenever there’s surplus knocking around. That convinces me I really am seeing the two things I want — high dividends and a likelihood of share price growth.

I do think we might still have to wait until we see the final shape of our Brexit agreement before Lloyds shares start to appreciate significantly, but for long-term investors that’s really no time at all. And in the meantime, we can just keep taking the cash.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.