This 6.5% yielder pays twice as much as Lloyds Banking Group plc

Lloyds

Lloyds Banking Group(LSE: LLOY) is the nation's most traded stock, as investors pin their faith on the bank resuming its historic role as a long-term dividend machine. The recovery has been a long time coming, even if its share price is up 23% in the past year.

Mirror, Mirror

Investors are keeping the faith  and have been rewarded with a resumption of the dividend. Lloyds now yields 3.79%, more than seven times the new Bank of England base rate. However, there are even juicier yields out there. Publishing group Trinity Mirror(LSE: TNI) now offers one of the juiciest of all, paying income of 6.57% a year, challenging the biggest payers on the UK market.

You do not need me to tell you that newspaper publishing is a tricky industry as fewer people buy newspapers, classified ad income migrates online, and online profits flow to Facebook and Google. Trinity Mirror's latest update said that: "Publishing revenue fell by 9% with print declining by 10% and digital growing by 4%." Digital is growing from a smaller base, and it isn't growing fast enough.

Unholy Trinity

However, the business continues to deliver strong cash flows after making structural cost savings of £20m for the year, £5m ahead of target. It also cut net debt by £3m to £19m, despite paying a £6m interim dividend in September. Trinity is also working to acquire Express newspapers and various other Northern and Shell publishing assets, which could bring further back office savings.

Trinity Mirror is at the sharp end of the historic shift away from print to digital. Earnings per share (EPS) growth was nevertheless positive for the last five consecutive years, although City forecasters reckon it will dip 10% this year and 2% next. This leaves the company trading at an astonishing 2.4 times earnings, with a forecast yield of 6.8%. Management is taking advantage by buying back its own stock, £9m at last count. The bad news is reflected in the share price. The good news is in the dividend.

Dark horse

While Trinity Mirror faces an uncertain future, the outlook for Lloyds should continue to brighten. Underlying profits are moving the right way, jumping 9% to just over £2bn in Q3. Over nine months, statutory profit before tax stood 38% higher at £4.5bn.

The interest rate hike will help improve net interest margins, but may also drive up consumer loan impairments. The PPI scandal is slowly fading, although we can expect an expensive rush up to the final claims deadline of August 2019.

Income hero

Saving the best until last, there's the Lloyds' dividend. Management still expects to deliver a progressive and sustainable ordinary dividend for the full year and may also distribute surplus capital via special dividends or share buy-backs. The current forecast yield is 5.7%, healthily covered 1.9 times, and it is slated to hit 6.4% in 2018. Many people will buy Lloyds for its dividend alone.

Lloyds is trading at a forecast valuation of just 8.6 times earnings, so you still have an opportunity. It may still lack a clean bill of health but the rising dividend will reward you while you wait for the medicine to work.

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Harvey Jones has no position in any of the shares 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.

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