Lloyds increases dividends by a fifth as it announces £1bn share buyback following landmark year

Lloyds Banking Group has raised dividends by 20 per cent to 3.05p a share after reporting its highest pre-tax profit since 2006 in its first full year results as a fully private enterprise.

The group, which was bailed out at the height of the financial crisis at a cost of more than £20 billion to the UK taxpayer, said the 24 per cent increase in pre-tax profit last year to £5.3 billion, as well as its strong capital position, would also allow a £1 billion share buyback, worth up to 1.4p per share.

The higher dividend and share buyback plans amounts to a £3.2 billion capital return to investors, the bank said.

Lloyds chief executive Antonio Horta Osorio said 2017 had been “a landmark year” after the government sold its last shares in the group, which is Britain’s biggest mortgage provider, in May.

“Our customers want better products they want more convenience. They want safer products,” Mr Horta Osorio said.

He also laid out plans to lend an additional £6 billion to small businesses in the UK over the next three years and provide £10bn more to first time buyers.

The increased investment is part of Lloyd’s efforts to adapt to changing consumer banking habits.

It also said the £3bn investment in personnel and infrastructure would focus on new technology as part of a three-year plan focused on expanding its digital services.

The group, which includes Bank of Scotland, said the strategy is in response to new regulation forcing big banks to open up their customers’ data to rival lenders and financial technology firms, enabling them to compete more effectively for customers.

Lloyds also plans to ramp up its financial planning and retirement business, increasing open book assets by 50 billion pounds by 2020 and expanding its corporate pension customer base by 1 million.

Meanwhile, the bank said it had put aside an extra £600m in the fourth quarter of last year to pay compensation over mis-sold payment protection insurance (PPI) claims.

This takes the bank’s total PPI costs for the year to £1.6bn.

Mr Horta Osorio has overseen a programme of bank branch closures, including job losses, since he took over in 2011. At that time the government still held a 43% stake in the bank.

Mr Horta Osorio said last year had marked a step-change for the group after the government sold its last remaining shareholding.

“We were, last year, able to give all of tax-payers’ money back and some more, which was a big moment of pride for all at Lloyds Banking Group.”

Richard Hunter, head of markets at Interactive Investor, said the results were “slightly below expectations”, but said most measures showed “strong improvement”.

“With the shackles of the government share stake now removed, Lloyds has been able to concentrate fully on financial growth and repair,” he added.