Here’s how my Lloyds shares will pay me 10%+

Lloyds Banking Group (LSE: LLOY) released its full 2022 results earlier today. Initially, investors pushed up the share price, with Lloyds shares reaching 49.44p. However, as the day wore on, this popular and widely held stock made a comeback.

Lloyds’ profits may have peaked

I think the initial disappointment of investors may have been triggered by the news that profits and profits at high street lenders may have been over the top.

In the final quarter of last year, Lloyds’ pre-tax profit came in at £1.8bn. This is almost 80% higher than the figure for the last quarter of 2021. This number was driven by profits which increased by 20% year-on-year to £5bn. So far so good.

Now for the bad news. First, Lloyds predicts that the net interest margin (NIM) – the spread between borrowing rates and savings rates – will fall slightly.

In the fourth quarter, the bank’s NIM reached 3.22%, from 2.57% at the end of 2021. However, the Black Horse bank expects this to fall further to 3.05% in 2023, behind analysts’ expectations of 3.15% .

Second, Lloyds set aside higher reserves to offset bad debts and loan losses. With the UK economy on the brink of recession and consumer confidence low, it’s no surprise that more borrowers will struggle in 2023.

Lloyds therefore set aside £465m of loan provisions for Q4, higher than analysts’ forecasts of £380m. In Q4/21, the group actually turned over £532m of loan reserves. There’s a £912m swing at the bottom of Lloyds there.

Lloyds gives shareholders £3.6bn

Of course, being one of the UK’s biggest banks at a time when our economy is looking weaker is hardly appropriate. Even so, I was a bit surprised by the 3% fall in Lloyds share price this morning.

What I want as an existing Lloyds shareholder is the bumper returns the bank is channeling to its owners. First, the group announced a £2bn share buyback, equivalent to the retirement of almost 5.8% of its existing share base. And reducing the number of shares in issue adds support to the stock price in the future.

Second, Lloyds announced a final dividend per share of 1.6p. The next dividend payment on shares of 0.8p has paid annual dividends and for 2.4p. This means that Lloyds will pay out more than £1.6bn to shareholders. splendid.

Lloyds shares look cheap to me

At the current share price of 51.25p (up 0.5% today), Lloyds is worth £34.6bn. Hence, the £3.6bn payout to shareholders is over 10.4% of the market capitalisation. For me, this is a great return to having this ‘boring’. FTSE 100 show value.

What’s more, Lloyds shares still look cheap to me. A price-to-earnings ratio of 8.5 translates to a healthy earnings yield of 11.8%. In addition, the dividend payment of 4.7% per annum is covered 2.5 times solidly by the trailing results. This is a good margin of safety.

Finally, although Lloyds shares are trading near the 52-week high of 54.33p, I am tempted to buy more shares in the bank. However, I will have to wait until the start of the 2023-24 tax year on April 6th!