Lloyds Banking Group will pay a dividend of 0.75p per share to investors, after reporting a rise in underlying profit of 26 percent to £7.8 billion ($12 billion) in 2014.
The dividend, Lloyds' first since 2008, may be small, but it is a significant milestone in the bank's recovery from its disastrous purchase of HBOS in 2008.
"It is the single biggest catalyst that investors were waiting for," according to Chirantan Barua, senior analyst at Bernstein.
The bank's executives will also be better rewarded this year, as Lloyds will pay out a total of £370 million in bonuses for 2014 - despite ongoing reputational issues. These includes share awards worth £7 million for Antonio Horta-Osario, the bank's chief executive.
Horta-Osario said he would not start to profit from these shares by selling them off until the government has significantly reduced its stake in the bank.
Under the terms of Lloyds' bailout by the U.K. taxpayer, who still owns around 24 percent of the bank's shares, the U.K.'s Prudential Regulation Authority has to approve Lloyds dividend payments.
Lloyds was expected to report a profit of around £7.5 billion by analysts. The bank struggled in the wake of the credit crisis, after the purchase of HBOS - made at the instigation of the U.K. government - meant it was more exposed to the U.K. housing market.
Horta-Osario said in a statement: "Our profitability and capital position have improved significantly."
"While we recognise we have more to do, we enter the next phase of our strategy from a position of strength," he added.