Paragon throws down the bank dividend gauntlet

Gather round, ye long-suffering shareholders of Lloyds Banking (LLOY) and Barclays (BARC). Word from the far reaches of the FTSE 250 speaks of a plucky bank upstart heralding freedom from your long dividend winter. The fearless income champion’s name, Paragon Banking (PAG), plans to pay its investors 14.4p a share for its 2020 financial year, albeit on a slightly delayed timetable.

In doing so, the group has not defied any strictures from the Bank of England – even if the central bank is yet to formally withdraw its March request for large lenders to suspend dividend payments. “Unfortunately, most of the banks’ year-ends are at the year-end, so we couldn’t follow much in terms of precedent,” chief executive Nigel Terrington told us, emphasising that Paragon had made the call on its own.

The step is a far cry from half-year results, when the group cancelled its payout. Citing stronger capital buffers and a stable loan book, Mr Terrington said "it's difficult to see why we wouldn't" return to the dividend list.

The mini-rally that followed these numbers means the group once again trades at its statutory net asset value, and a chunky premium to tangible book value of 390p a share. Analysts also expect the return on tangible equity to climb back to double-digits this year, having dipped to a still impressive 9.7 per cent in the 12 months to September.

All the same, it feels a little premature to expect nailed-on growth, even if a rising deposit base is encouraging. On balance, however, the turnaround in sentiment is justified for this well-balanced business. Hold.

Last IC View: Hold, 373p, 10 Jun 2020