A strong economy

The next US Federal Reserve meeting is expected to mean a 50 basis points hike in the Fed funds rate. This is equivalent of a 0.5% interest rate hike and has sparked fear of a still-bigger stock market correction. The Fed has a history of being too hawkish and spurring recessions, which affects markets globally, including here in the UK. Nonetheless, Moore thinks that the US economy is strong enough to handle multiple rate hikes this year. This is backed by strong employment numbers, heavy assets, and positive earnings results. He also believes inflation is close to reaching its peak. Nonetheless, oil remains the biggest issuing affecting consumer prices. The black gold could spark chaos again if it spikes above $100 per barrel.

Moore sees this year’s stock market correction as being short-lived due to the positive economic data coming in. He expects new market highs to come at some point next year. This should happen once inflation cools down and supply chain bottlenecks ease. Unfortunately, that’s where his bullishness ends. He thinks those new highs could be followed by a potential recession soon after, and into early 2024. This is most likely to happen once ‘stagflation’ (High inflation, but slow or no real economic growth) starts to take effect.

Time is my best friend

Will all that deter me from investing? No. There are four cycles in investing — accumulation, mark-up, distribution, and legacy. This was mentioned by Moore in my interview with him. As a young investor, I’m currently in the accumulation phase. This phase is where I see buying opportunities with attractive valuations during a bear market. Moore sees the current US market correction as a buy-the-dip opportunity for me, as I begin to pick up good discounts on mega-cap companies with healthy balance sheets, attractive margins, and pricing power. The tech-heavy Nasdaq in the US is down over 12% so far this year. That presents plenty of opportunities for me to buy shares in big US-listed tech companies such as Amazon, Alphabet, and Microsoft.

My buy the dip strategy

As Warren Buffett once said: “A diversified portfolio with exposure to different sectors is protection against ignorance.” This same advice was alluded to by Moore in our interview. The main takeaway was for me to invest more in a variety of value and dividend stocks. These can include commodities, insurance, and healthcare.

I was also pleasantly surprised to find out that Moore follows a similar buying strategy to mine. And he continued to encourage me to buy the dip. This means buying when I see around a 5% to 10% decline in a specific stock. When I asked him how much cash I should be leaving on the side to buy those dips, he mentioned 15-20% of my investment portfolio.

Ultimately, my purchases would be dependent on my risk assessment during any market fall, of course. But I will be buying the dip in mega-cap companies with excellent fundamentals for my portfolio.

The post Should I buy the dip in this stock market correction? appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What does the yield curve have to do with a recession?

An economic recession is typically defined as two straight quarters of negative gross domestic product (GDP). This means that the economy is contracting. Many analysts point towards the yield curve inverting as an indicator of an impending economic decline. After all, it has ‘predicted’ seven of the past eight recessions. The yield curve is an indicator of returns from government bonds. These bonds have a maturity date that can range from 1 month to 30 years. Wall Street normally sounds the alarm whenever short-term bonds (2-year) yield a higher return than long-term bonds (10-year), thus inverting the typical yield curve. Investment banks such as Deutsche Bank and Goldman Sachs have even predicted a recession based on this.

Cherry picking

I believe the data surrounding the relationship between the yield curve and an economic recession has been cloudy. Among all the times the yield curve has inverted in the last 30 years, a recession only preceded it three times. As such, I do not believe that three, or even arguably two data points constitutes good statistics. It is worth noting that the 2020 recession was caused by a global pandemic. Going back further, the yield curve had also inverted in 1995, 1996, and 1998, with no recession following. While it is common for a recession to follow after the inversion of a yield curve, it is not absolutely indicative of it.

Current economic data remains healthy and robust. The unemployment rate continues to decline while labour participation heads back to pre-pandemic levels. In addition, PMI numbers continue to expand, and spending patterns continue to show that consumers are in good shape. Most importantly, GDP continues to grow despite high inflation. Therefore, I think the economy is in a strong enough position to absorb the impact of rate hikes by the Fed, although an overly aggressive Fed might spark a recession.

Investing in a safe bet

While I do not know whether a recession will or will not materialise, I do know that Warren Buffett’s investing philosophy has been effective in generating healthy returns over the long term. I will continue to invest in companies with solid fundamentals, strong earnings, and potential for growth. I believe Alphabet checks all these boxes. It has a hybrid nature of being a defensive and growth stock. Its monopoly in the search and advertising space means that although revenue will take a hit, its position in the market is unlikely to get compromised. It also has tremendous earnings potential in an increasingly inelastic service, cloud computing. So whether a recession happens or not, I will continue to invest in companies that have strong fundamentals, such as Alphabet.

The post Here’s why a recession might not actually happen appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Share price low

First though, a look at what was previously behind falling investor confidence.

Lloyds has featured prominently in the news for some time now. The banking group made headlines back in June when it announced it would be closing 44 branches around the country. This came on top of the 56 branches Lloyds has previously said it would close in January 2020.

It doesn’t take a genius to work out why it would do this. Branches are expensive in terms of employees, rent and building maintenance. Younger generations prefer to bank online anyway so why would it keep ‘unviable’ branches open?

News of the closures might have been expected to have pushed the share price up, but both of these announcements happened to coincide with some other momentous news. The pandemic and a lawsuit. These two events unsurprisingly reversed the fortunes of the Lloyds share price and it has taken time to recover.

What’s bringing investors back to Lloyds?

Landlord Lloyds

I think what’s going on in the housing market is crucial here. House prices across the UK have skyrocketed over recent months and Lloyds announced back in August that it was aiming to buy over 50,000 homes across the country by 2030. It then plans to turn those homes into rental properties. It appears of these acquisitions are aimed exclusively at newly-built homes.

This could push up the Lloyds share price, but there’s an added twist to it.

The Bank of England announced yesterday that it expected to see a sharp rise in defaults over the coming months due to rising interest rates, the end of furlough and cuts to universal credit. While the economy may be opening up again and slowly recovering to pre-pandemic levels, large numbers of people have been left behind by the recovery. Some may be unable to repay their mortgages.

It just so happens that Lloyds is the largest mortgage lender in the country.

Conclusion

Lloyds could sell the homes it repossesses, or they could simply be added to its rental portfolio. Whichever it chooses to do, rising rents and rising house prices will be very profitable in the long term. And the UK’s chronic housing shortage means homes demand (and the mortgage market in which Lloyds is such a big player) remain buoyant. I believe that all of this is a big part of the Lloyds share price surge. 

Personally, I don’t think I can add Lloyds shares to my portfolio just yet. The market is already hyper competitive and I’m uncomfortable with the idea of a bank buying up newly-built homes around the country. For now, it’s a no from me.

The post Lloyds share price goes up 13% in six months, but I won’t be buying it appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

James Reynolds holds no share mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

UK economy and housing

Lloyds is a British retail and commercial bank. It doesn’t operate overseas and doesn’t have an investment banking arm. This makes the firm heavily reliant on the UK economy. As my fellow Fool Roland Head pointed out, Lloyds is planning to enter the landlord market, building and renting out properties to the UK public. It’s already the UK’s largest mortgage lender so has experience in the housing market. And I expect the added revenue from rent to push up the Lloyds share price in the future. However, this move isn’t likely to provide an immediate boost for the bank.

Looking more broadly at the UK economy, it seems a rise in inflation could be on the horizon. Analysts from the National Institute of Economic and Social Research indicated that CPI could rise to 3.9% in early 2022. This is almost double the Bank of England’s target. If this is the case, we will likely see interest rate hikes, which could complement the Lloyds share price as banks will be able to charge higher rates for lending. Again, this factor is likely to be a longer-term benefit for the Lloyds share price, but the coming months may grant more clarity on CPI direction.

Inflation outlook

As Lloyds is so heavily reliant on the UK economy, it’s worth examining inflation forecasts further. In the US, Fed Chairman Jerome Powell has hinted he believes US inflation to be transitory. Most recent price gains have occurred in categories such as cars, flight tickets, and hotel rooms. This is to be expected as the economy reopens after the pandemic. Therefore, it could be rational to assume that any UK inflation concerns may also be short term, which may limit growth in the Lloyds share price beyond 2022.

That said, Michael Sanders of the Monetary Policy Committee (MPC) alluded to a tapering of Quantitative Easing (QE) in July. QE is the purchase of government bonds by banks to create new money in the economy. This signifies longer-term inflation for the UK economy, which could be good news for the Lloyds share price.

Lloyds share price: my verdict

I think the biggest factor for the Lloyds share price moving forward will be how inflation pans out. At the moment, there seems to be no clear-cut direction for future interest rates. I will be closely monitoring the MPC and Fed announcements over the next few months before considering purchasing any UK bank shares.

The post Where will the Lloyds share price move in the future? appeared first on The Twelfth Magpie.

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• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Dylan Hood has no position in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cash king 

Equiniti should benefit as, aside from its core share registration business, it also offers a bevy of related critical but non-core technology applications to more than half of the FTSE 100. That includes pension administration, employee share plans, regulatory compliance software and payroll solutions.

Some of its many offerings mean it holds a significant amount of cash for clients. In H1 2017 it held some £1,700m of client cash on its balance sheet and received £4.7m in income from investing this cash in short-term securities. This income was 19% lower than the year prior due to the BoE’s rate cut in August 2016 following the Brexit vote. And while two-thirds of this cash is invested in fixed rate securities, Equiniti will see rising income from the rest as we go forward.

Now, Equiniti also has roughly £450m in debt, so it will see interest payments rise for any portion of this debt that has a floating rate. However, this debt level is comfortable for the firm due to its steady recurring revenue, high cash flow and the fact that £120m of it is related to the recent acquisition of Wells Fargo Share Services. This deal has made Equiniti the third largest provider of such services in the US and marks its entry into the world’s largest market for them.

Equiniti’s share price has risen by 55% over the past year and its shares are now priced at a full 19 times forward earnings. That said, I see plenty to like about the firm and believe it has stellar growth prospects as it cross-sells its array of services into the US and builds on its dominant market position in the UK.

A most welcome surprise 

As a pureplay retail bank, interest rates are very important for Metro Bank (LSE: MTRO) as it gives the company more room to increase the spread between the interest rate at which it borrows money, ie deposits or corporate borrowings, and the rate at which it lends it out.

Taking the difference between these two and then dividing by the bank’s total interest-bearing assets is referred to as the net interest margin (NIM), and with interest rates at rock bottom levels for years, banks’ NIM have been very low. Indeed, in the quarter to September, Metro Bank’s statutory net interest margin fell from 1.95% to 1.94% year-on-year.

However, this figure is a bit distorted by the BoE’s own term funding scheme. The bank’s underlying NIM based purely on its main source of funding going forward, actual customer deposits, was a heartier 2.22% and was growing even without the interest rate hike. Needless to say, this semi-unexpected rate hike should further benefit this metric.

There’s plenty of other moving parts to consider with fast-growing Metro Bank, but with interest rates rising and a compelling rollout plan, I’ll follow the challenger bank closely, even if its 3.92 price/book ratio has it very, very highly valued.

The post 2 growth stocks benefitting from the Bank of England’s interest rate hike appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The SMMT announced that new car registrations rose 2.9% last month, to 174,564. This was the best January reading since 2005, and has defied other retail indicators suggesting that consumers are dialling down spending after the shopping excesses of the festive period.

The news gave car dealer Lookers (LSE: LOOK) a huge share price shot in the arm, brushing the retailer to heights not seen since last September. In total the company has seen its stock value shoot 10% higher since the start of the year.

But investors shouldn’t be breaking out the bubbly just yet, in my opinion, as signs of rocketing inflation in 2017 could steadily put sales of big-ticket items under pressure. And on top of this, forecourt prices are predicted to rise as sterling spirals lower.

Furthermore, a steady rise in the cost of motoring — from climbing fuel pump prices through to increasing insurance premiums — could also weigh on vehicle demand in the near term and beyond.

Sure, Lookers may not be expensive on paper, an expected 3% earnings rise in 2017 resulting in an undemanding P/E ratio of 8.4 times. However, should expectations of declining car sales come to fruition as the months progress, I believe the car colossus may find itself on the end of a painful share price retracement.

Bank barges higher

Banking behemoth Standard Chartered (LSE: STAN) has also got off to a storming start in 2017, the stock gaining 21% in value since January kicked off and striking 18-month peaks in the process.

However, I believe the emerging-market-focused bank still has a long way to go before it can be considered a robust growth selection, even if brokers have forecast a 136% earnings explosion this year.

Expectations of several Federal Reserve rate hikes have boosted hopes of rejuvenated revenues expansion at StanChart this year and beyond. And those seeking exposure to the UK’s listed banks have also been piling in as the firm’s Asian bias minimises the impact of Brexit on the top line.

But there are still a number of problems that could see the share price shuttling lower again. Standard Chartered still has a long way to go to get revenues chugging in its far-flung regions, particularly as economic turbulence in these regions continues.

And while the institution has worked hard to cut costs in recent years, the firm’s balance sheet can hardly be considered in rude health. Indeed, Bank of England stress testing in November showed “some capital inadequacies” at the business, a situation that could dash hopes of reinstated dividends happening some time soon.

In my opinion, Standard Chartered’s route back to strong earnings expansion is far from assured, and I reckon the firm is undeserving of a sector-busting P/E rating of 20.2 times.

The post These stocks have surged in 2017. Will they plummet in February? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The ‘Black Horse’ bank has shed a quarter of its value since British voters decided to leave the European Union in June, and with good reason — quite how Lloyds will generate revenues growth in the years ahead, as severe economic cooling appears on the cards from 2017, and with it a backcloth of ultra-low interest rates, remains the subject of much head-scratching.

Economy slumping?

The Bank of England’s latest ‘Credit Conditions Review’ this month certainly gave cause for stakeholders in Britain’s banks to be concerned.

The report noted that

“secured credit demand for house purchase fell significantly in the three months to mid-September“

adding that

“major UK lenders reported that the fall in demand was likely to have been driven by temporary factors that led borrowers to defer mortgage applications, particularly the outcome of the UK referendum on membership of the EU.”

As the UK’s largest residential mortgage lender, a prolonged deterioration in homebuyer appetite could take a large chunk out of Lloyds’ top line. Indeed, a separate report from the Bank of England last month showed the number of mortgage approvals sinking to 21-month lows in August.

But this is not the banking sector’s only worry. Indeed, the Bank of England also warned that “demand for credit from businesses weakened across all business sizes in quarter three.”

As well as the pressures created by Britain’s muddled EU withdrawal, the likes of Lloyds are also being battered by the rise of ‘challenger’ banks stepping up to lend to business. Just last week Redwood Bank was the latest in a string of new institutions to apply for a UK banking licence.

PPI problems

On top of fears that Lloyds’ statement may reveal a sharp economic deceleration, investors are also sweating over another huge hike in what the firm set aside to cover the long-running PPI mis-selling scandal.

Indeed, the boffins at UBS have factored in an £800m charge for the July–September period, while recent media reports also suggest an oncoming storm for Britain’s banks. Just last week Sky News reported that executives at Lloyds, RBS, Barclays and HSBC are bracing themselves for a collective £2bn hit for the third quarter.

Lloyds has been by far the worst culprit on the PPI front, and so far set aside £16bn to cover the cost of the scandal. And the FCA’s decision to put back a proposed claims deadline to mid-2019 is likely to keep the colossal bill ticking higher for some time yet.

While many would argue that the economic and legacy risks facing Lloyds are currently factored into the share price — the financial giant currently deals on a P/E ratio of just 7.6 times — I would expect the sellers to come out in force again should third-quarter numbers be worse than even the most sombre of forecasts.

The post Should you ditch Lloyds Banking Group plc before next week’s results? appeared first on The Twelfth Magpie.

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• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
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• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Adding insult to injury, this latest setback came just days after Barclays posted better than expected first-half results that had boosted share prices by over 5%. Of course, this being a large bank’s results, ‘even better than expected’ meant a 21% slide in year-on-year pre-tax profits.

The RoE issue

This is particularly bad news for Barclays because the bank has up until now been able to rely on solid results from its UK retail banking arm to compensate for poor performance at other divisions. Underlying return on tangible equity (RoE) on UK operations was an astounding 19.4% in the past half year, but this was already lower than the 21.9% posted in the same period a year ago.

If lower interest rates on mortgages and other loans, together with the ill effects of the expected post-Brexit slowdown, cause UK retail banking RoE to continue dropping then investors should worry. This is because phenomenal results from the UK were more than overshadowed by poor performance in its bad asset book and investment banking arm, which dragged overall RoE down to 4.8% over the last six months.

The divergent fortunes of its mundane retail banking operations compared to sprawling global assets are the crux of the problem facing Barclays as its shares still trade at less than a fifth of their pre-Financial Crisis price. Staley’s answer so far has been to sell the African assets that were purchased just a few years earlier. While this process is going well, with 12% of Barclays Africa offloaded already, it still leaves £46.7bn in bad assets on the books alongside the relatively low-return investment banking division.

Progress is being made in winding down the non-core bad asset division, but it will continue to weigh on overall returns for years to come, as it did this past half year with a £1.9bn loss. The bigger long-term issue is what to do with the investment bank, where RoE fell to 8.4% from 9.8% this time last year. Although this division is still profitable, it gobbles up nearly three times the risk-weighted assets of UK retail operations. This is money that could otherwise be deployed to more profitable areas or returned to shareholders.

With no end in sight to the struggles of the investment bank, lower net interest margin all but inevitable, high operating costs continuing at all divisions and the potential side effects of any post-Brexit slowdown on Barclays UK and you have a recipe for one company i’ll continue to avoid like the plague for now.

The post The latest interest rate cut is yet another reason I’m avoiding Barclays plc appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The BoE has also slashed its 2017 growth forecast from 2.3% to 0.8%, the biggest cut since it started issuing such forecasts in 1993 — it seems the leave vote has destroyed the strong UK recovery that was just starting to get established.

But for us, the questions are what effect will it have on our investments, and how should we adjust our strategy accordingly?

The short answer to the second question is actually pretty easy — it shouldn’t affect our investing strategy at all, as the best long-term approach is completely independent of interest rates.

How should we invest?

In the short term, average monthly mortgage repayments should fall by around £22 (according to the ONS), so you could have another £264 per year to invest (or more if you have a larger mortgage). Set against that, the cash you’re likely to get in interest from a savings account is going to crash to maybe enough for a bottle of sherry at Christmas.

That highlights something we already know — whether times are good or bad, cash in a savings account is one of the worst performing investments of all time (with obvious exceptions like the lottery and the gee-gees). In fact, according to the annual Barclays Equity-Gilt Study, investing in shares has beaten cash 91% of the time over rolling 10-year periods since 1899, and shares have won in 99% of all rolling 18-year periods.

Other than some cash kept in an easy-access account for short-term emergencies (most would suggest a couple of months’ salary), I think times like this truly reinforce the superiority of keeping your long-term investments in shares. So, if you have a decade or more of investing ahead of you, what should you be looking for?

Dividends rule

I reckon the best approach is to look for FTSE 100 shares paying good dividends for the bulk of your investments, and spread the cash around various sectors to minimise the risk. So which are the best dividend payers in the FTSE 100 today?

The biggest right now come from our housebuilders and banks, which have both been hard hit by Brexit fallout. But if you think, as I do, that the share price falls are overdone, you could get a very nice dividend yield of 6.7% from Barratt Developments (assuming current forecasts turn out to be accurate), and 6.5% from Lloyds Banking Group.

Essentially unaffected by Brexit, but still suffering from low oil prices, both BP and Royal Dutch Shell are expected to pay out around 7% in dividends this year. And there are some nice forecast yields from the depressed insurance sector too — my picks are the 6% from Aviva and 7% from Legal & General, both of which have said they expect minimal hardship (if any) from leaving the EU.

Then there are super-safe payers like SSE offering 6% and National Grid on 4%. If you invest in a diversified selection from these shares, I expect you’ll be smiling in 10 years time — and well ahead of those relying on paltry interest rates.

The post What’s the best investing approach to low interest rates? appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Lloyds (LSE: LLOY), for one, has been dragged to its cheapest since April 2013 at 50.4p per share as of the time of writing, meaning the stock has shed almost a third of its value since 2016 kicked off.

Concerns over the strength of Britain’s banks have long been doing the rounds, although Lloyds has avoided the worst of sinking investor appetite thanks to promises of bubbly dividends. Indeed, the City has chalked-in dividends of 3.8p and 4.1p per share for 2016 and 2017, respectively, figures that yield a terrific 7.6% and 8.1%.

Bank steps in

But stock pickers are becoming increasingly concerned over these projections. And the Bank of England’s intervention yesterday would have done little to assuage such fears.

‘The Old Lady of Threadneedle Street’ sought to shore up the banking industry on Tuesday by cutting the counter-cyclical capital reserves needed to be held by the likes of Lloyds, to 0% from 0.5%. These measures will “[raise] banks’ capacity for lending to UK households and businesses by up to £150bn,” the bank said.

However, the Bank of England fired a warning over how the banking sector chooses to use this greater capital flexibility. Indeed, the Financial Policy Committee said that it supports the expectation of the Prudential Regulatory Authority board “that firms do not increase dividends and other distributions as a result of this action.”

This could prove a decisive development for those hoping for Lloyds to hike 2015’s total dividend of 2.25p per share.

Self-help star

Many commentators believed that Lloyds was on course to shell out handsome rewards to shareholders following the self-help actions of recent years.

The company’s Simplification scheme has worked wonders in streamlining the group and taking the hammer to Lloyds’ cost base. These measures have transformed Lloyds’ balance sheet, and a subsequent CET1 ratio of 13% times as of March is one of the best in the industry.

Meanwhile, the bank’s dependence on the stable-but-unspectacular British high street provided Lloyds with terrific earnings visibility, a critical quality for dividend chasers.

Brexit pains

But the results of last week’s referendum have very much changed the game. Aside from the Bank of England’s comments on Tuesday regarding future dividends, Lloyds is at the mercy of a significant cooldown in the UK economy, a situation that could deliver a hammer blow to revenues in the years ahead.

And in particular, the Black Horse bank’s position as the biggest residential lender leaves it in severe danger should the domestic housing market crash.

Britain’s central bank also advised that “there is evidence that some risks have begun to crystallise,” advising that that “the current outlook for UK financial stability is challenging.”

Against this backcloth, I believe that Lloyds is in serious danger of not meeting the City’s bullish dividend forecasts.

The post Has Brexit smashed Lloyds Banking Group plc’s exceptional dividend forecasts? appeared first on The Twelfth Magpie.

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• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.