The Government has confirmed that at least £2 billion of shares in Lloyds Banking Group will be sold to the public from next spring.
The good news for private investors is that the shares will be sold at a 5% discount to the market price. In addition, if you hand onto the shares for a year you will receive one bonus share for every 10 bought in the flotation, up to a maximum bonus of £200 per investor.
Should you buy Lloyds Bank shares?
For me, it's a firm yes, because of the attractive incentives on offer which help to turbo-charge investor returns.
Let's say, for example, that I buy £2,000 of shares in the float next spring. Assuming a 77p market price (the current price), these shares would cost 73.15p each. So my money would get me 2,734 shares. Selling these immediately (and ignoring transaction costs) would raise £2,105.18, for an instant profit of £105.18. This is a return on day one of a little over 5%.
[SPOTLIGHT]However, holding the shares for a year is an even better option, as the free shares bonus gives me an extra 273 shares (£200 of shares at 77p each). Selling my entire holding after I get the free shares a year on – 3,007 in total – raises £2,315.39 (again, using a share price of 77p).
In this example, if I buy the shares and hold them for a year before selling them, I would make a return of 15.77%, which is well worth grabbing. If the share price rises above the float price, then this magnifies my returns yet further and boosts my profits even more. Likewise, any quarterly dividends paid following the float would be yet more icing on my investment cake.
Of course, with any investment it's important to remember that the price could easily go down, leaving you out of pocket. But for me this looks like an offer I couldn't refuse.
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Lloyds could pay tasty dividends
If you are happy to own bank shares as part of your investment portfolio, then hanging onto these Lloyds shares could be a smart move in the long term.
Lloyds' last two quarterly dividends (paid on 19 May and 28 September) were just 0.75p apiece, but the bank expects to ramp up its dividends over the next two to three years. A 3p yearly dividend equates to a dividend yield of nearly 3.9% at the current market price of 77p.
If Lloyds' yearly cash payout were to rise to, say, 5p a share, then its dividend yield would soar to nearly 6.5%, making it a high-yielding heavyweight in the FTSE 100 index. Such a high yield would make Lloyds a core holding for income-seeking investors, including fund managers.
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