Lloyds Banking Group is paying its first dividend in more than six years after reporting a rise in profit and improvements in its capital strength, a milestone in the bank’s recovery after it was bailed out during the financial crisis.

The bank, which was rescued at a cost of £20 billion to British taxpayers, said it would pay a dividend of 0.75 pence for the 2014 financial year.

Chief Executive Antonio Horta-Osorio said Lloyds, which offered some of the highest dividends in Britain before the crisis of 2007-2009, intended to pay out at least half of its sustainable earnings in the medium term.

Lloyds reported an underlying profit of £7.8 billion, up from £6.2 billion the year before and ahead of the market expectations for a profit of 7.5 billion pounds.

The bank said its core Tier 1 ratio, a key measure of its financial strength, rose by 250 basis points to 12.8 per cent.

“Today’s results are another major milestone in the recovery of the British economy from the great recession and the bank bailouts,” said Britain’s Chancellor of the Exchequer George Osborne.

The government will receive a dividend of £130 million, which Osborne said would be used to reduce the national debt. It has already raised nearly eight billion pounds from the sale of shares in the bank, reducing its stake to below 24 per cent.

Industry sources say paying a dividend will help the government sell its remaining shares, making them more attractive and raising the prospect of a sale to private retail investors.

Lloyds’ last payment to shareholders was an 11.4 pence per share dividend for the first half of 2008, paid out in October of that year.

Lloyds is further along the road to recovery than its bailed-out rival Royal Bank of Scotland, which on Thursday reported a hefty 2014 loss.

RBS’s turnaround has been hampered by investigations into past misconduct and a sale of the government’s 79 per cent stake remains some way off.