Is the Lloyds dividend forecast tempting?

With leading banks Lloyds (LSE: LLOY) is set to announce its full year results to the City tomorrow, I’ve been considering whether now might be a good time to buy shares for my portfolio again. I sold last year, concerned about the wider economic environment and the fact that bank dividends still haven’t returned to pre-pandemic levels.

Is Lloyds dividend forecast enough to tempt me back into the stock?

Lloyds dividend forecast

Last year, the next dividend payment was 230%. However, I don’t expect anything like the order they improve this time.

At this year’s interim stage, the year-on-year increase was 19%. That’s less than a 230% jump, which is still substantial. My Lloyds dividend forecast for tomorrow is a full year increase of around 19%, or perhaps slightly more. The final dividend yield was 1.6p.

Before the pandemic, the final dividend represented about two-thirds of the year’s total. With last year’s interim dividend of 0.8p, the final payout of 1.6p will restore the historical split between interim and final payouts.

The next dividend payment on Lloyds Limited shares pays a dividend of 4.7%.

Slow dividend recovery

Lloyds’ full-year dividend forecast is 2.4p per share, but it will still pay below the pre-pandemic rate.

The interim dividend is only 71% of the equivalent of 2019. But between 2019 and the end of the year, earnings per share for the six-month period increased by 37%. Based on that, I expect the current interim dividend to be larger than in 2019, but it is actually smaller.

Additional capital return

It’s not like Lloyds doesn’t have enough money. Indeed the dark horse has used up to £2bn of spare cash to buy back its own shares. I wouldn’t be surprised to see more buybacks tomorrow. The business is a leading mortgage lender in the UK and has a strong brand. Both of them can help you make big profits.

My inference is that bank management simply does not prioritize returning dividends to pre-pandemic levels. There is a lot of money that can be made, but so far they have not chosen.

There is also the possibility of a special dividend. Lloyds can distribute some of its surplus capital with one-off dividends. But with management’s stance on dividends so far and the risk of increasing debt defaults hurting profits, I don’t expect such a move.

My movement

Over the past year, Lloyds’ share price has finally moved sideways: almost exactly where it started. Given the share buyback has led to less shares in circulation, which means that the overall value of the bank has actually fallen at that time.

While the dividend yield is attractive, I think the flat share price reflects ongoing investor concerns about whether a weak economy can hurt the bank’s profits. I have such concerns. Because, Lloyds dividend forecast is not enough to sway me. So I won’t buy it.