Lloyds Share News (LLOY)

Lloyds Banking Group has resumed payment of its dividend after six years with a small payment of 0.75p as its balance sheet grew more solid, though full year profits fell short of market forecasts.Underlying profits surged 26% to £7.8bn, broadly in line with consensus analyst estimates, as income edged up just 1% to £18.4bn, operating costs improved 2% to £9.4bn and fewer impairments were needed.Statutory profits before tax roared more than fourfold higher to £1.8bn, but were somewhat shy of the consensus expectation for £2.6bn. This was due to the inclusion of an additional £1.1bn of legacy charges in the fourth quarter, mainly from the bank setting aside a further £700m provision for mis-sold payment protection insurance (PPI) to bring its annual total to £2.2bn.Underlying earnings per share rose 22.7% to 8.1p, with statutory EPS back in the positive territory at 1.7p after the previous year's loss.Analysts were encouraged as the bank's net interest margin, the difference between interest gained and paid, climbed 33 basis points (bps) to 2.45% and with guidance hiked for 2015.Management's simplification programme led to the cost base shrinking from over £11bn in 2010 to £9.0bn, with a cost:income ratio of 51.2% that is the lowest among its major UK banking peers.The capital position of the group was much improved, with Tier 1 capital strengthened to 12.8% from 10.3%, the total capital ratio up to 22.0% from 18.8% and the leverage ratio rising to 4.9% from 3.8%."Over the last four years we have transformed Lloyds Banking Group into a low cost, low risk, UK focused retail and commercial bank," said chief executive Antonio Horta-Osorio, whose total remuneration package was revealed to total £11m after shares in the group rose by 193% since 2012.Acknowledging that management has more to do, he unveiled guidance for 2015 that included expected net interest margin of around 2.55% and said the bank was targeting a cost:income ratio to exit 2017 at around 45%, with reductions in each year.Guidance remained for the dividend ratio to increase to over 50% in the medium term, with the company planning to pay an interim and a final payout from now on.Broker Investec said the "token" dividend was welcome but, with a CET1 ratio of 12.8% and potential for 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%".Analysts at Shore Capital said they were not particularly concerned by the fact that the dividend was smaller than anticipated as management "had always said it would be a token effort at first".For them, the most important news on guidance was the net interest margin increase to 2.55% in 2015, which compares to consensus estimates of 2.47%, especially given current competitive pressures on asset spreads, notably within the mortgage market.