Buy Lloyds on pull-backs in share price, JP Morgan says

Lloyds Bank was best placed among the UK´s High Street lenders to complete its balance sheet transformation and become a dividend growth story again, JP Morgan said in a research note sent to clients.

Analyst Raul Sinha estimated that Lloyds would announce a 2015 dividend of 2.0p per share, including a special pay-out of 0.5p.

That was despite the pressure on revenues which would result from a scenario of interest rates in the UK remaining "lower for longer".

Indeed, following the lender´s 2015 results Sinha said investors would increasingly focus on Lloyds´s capacity for paying out dividends.

He expected Lloyds to pay out a cumulative 18p per share over the period running from the fourth quarter of 2015 to 2018, an amount equivalent to 27% of its market capitalisation, while its core Tier 1 equity would improve from 13.7% to 16.0%.

The shares were trading on eight times Sinha´s estimate for the bank´s earnings in 2016, sporting a dividend yield of 8.2% and offering potential upside of 34% to his revised target price of 90p (down from 98p previously) per share.

Sinha reiterated his 'overweight' stance on the shares of the lender.

The lower target price was due to delays in interest rate increase expectations, the impact of recent floods on its insurance arm and lower loan growth assumptions, the analyst said.

"We view any pull-back as a buying opportunity. Lloyds remains our top UK bank pick."