Lloyds’ (LSE :LLOY) shares are trading at 95.8p, making them the only major UK bank stock selling for less than a quid. But does the low price represent good value and, more importantly, are they the best option for passive income?
At first glance, Lloyds looks appealing. A dividend yield of 3.71% beats most savings accounts, and a price-to-earnings (P/E) ratio of 12.22 suggests it isn’t overpriced.
For a UK-focused bank with a simple business model, that can feel reassuring. But income investors rarely look at one stock in isolation.
How much income could Lloyds actually deliver?
If you invested £10,000, a 3.71% yield would generate around £371 a year in dividends, assuming payouts remain stable. That’s a decent baseline, especially for a bank often seen as a barometer of the UK economy.
But it’s a bit lacklustre compared to the type of returns most passive income investors target. On the plus side, it’s sufficiently covered by earnings, growing 9% year-on-year (yoy), and backed by the reliability of a well-established bank
To sum it up, Lloyds offers consistency, but not standout income or growth.
Is there better value among FTSE 100 banks?
Looking across the sector, a few rivals offer more compelling numbers.
| Bank | Yield | P/E Ratio | Earnings growth (yoy) | Notable Point |
|---|---|---|---|---|
| Lloyds | 3.71% | 12.22 | 9% | UK-focused, low share price. |
| NatWest | 5.59% | 8.16 | 19.76% | Highest yield, strongest value. |
| Barclays | 2% | 9.27 | 15.64% | 42-year dividend record. |
| HSBC | 4.23% | 14.78 | 6.33% | Price up 203% in five years. |
NatWest clearly stands out for income and value. A 5.59% yield is significantly higher than Lloyds, and its lower P/E ratio suggests the shares may be undervalued. Add earnings growth of 19.76%, and it looks attractive.
However, the share price is down 13% this year, and its eight-year dividend track record is relatively short.
Barclays sits at the opposite end. The yield is just 2%, but it has paid dividends for 42 consecutive years. For cautious investors, reliability matters.
HSBC offers a middle ground. Its 4.23% yield is solid, and its global footprint provides diversification. The share price has climbed 203% over five years, which highlights its growth credentials.
What should income investors focus on?
When choosing between these banks, it helps to weigh a few key factors:
- Dividend yield: higher yields boost income but can signal risk.
- Valuation: lower P/E ratios may indicate better value.
- Reliability: long dividend histories reduce uncertainty.
- Growth: rising earnings support future payouts.
For income and value investors, NatWest looks a clear winner. But with a weakening price and only an eight-year payment record, it lacks the long-term reliability of Barclays. And HSBC’s global diversification and strong share price performance make it appealing for a mix of income and growth.
So long story short. For high-yield dividend hunters, NatWest deserves a closer look. From a defensive point of view, both Barclays and HSBC could help quell volatility over the long term.
Lloyds meanwhile, remains a dependable option. It’s often viewed as a bellwether for the UK market, making it a good foundational stock to consider in any portfolio.
