Lloyds‘ (LSE: LLOY) shares have enjoyed strong dividend growth since Covid and now boasts a decent track record. They suffered a sharp cut in 2020 but weren’t paused, and the annual payout has now recovered from 2p to 3.65p.
But the dividend yield, after peaking above 6% in 2023, has dropped back to 3.8% at today’s share price. That’s barely above the FTSE 100 average.
So how does it compare to other income-focused UK banks?
Tough competition
While I think Lloyds still has appeal, it’s not quite what it used to be. Encouragingly, analysts expect the dividend to rise to 5.9p per share by 2028, which could push the yield above 6% again.
But with NatWest and HSBC already offering stronger yields, what’s the most attractive option right now?
When comparing dividend forecasts, the three banks start to look quite different:
| Bank | 2025 dividend | 2028 expected dividend | Yield at today’s price |
|---|---|---|---|
| Lloyds | 3.65p | 5.9p | above 6% forecast |
| HSBC | 75c | $1+ | 5.7% |
| NatWest | 32.5p | 44p | 7.8% |
HSBC paid a 75c full-year dividend in 2025 and is expected to lift that to over $1 by 2028. On current prices, that would mean a 5.7% yield.
Earnings per share (EPS) are also forecast to climb sharply, from $1.20 to $1.95, which would give the dividend decent cover.
NatWest looks even more attractive on pure income. It paid 32.5p a share in 2025 and is expected to increase that to 44p by 2028. On today’s share price, that works out at a 7.8% yield. Plus, EPS is forecast to rise from 67p to 86p, so the payout should remain reasonably supported.
For an income investor, those numbers are hard to ignore. But, of course, the yield’s only half the story.
Risk comparison
Shopping for yield without assessing risk is like buying a fast car without checking the brakes. Both could end in tears.
Lloyds carries the clearest domestic risk, being heavily exposed to the UK economy and housing market. A sharp downturn or weakening property market could notably impact profits. Plus, there’s the ongoing motor-finance scandal. It’s already put aside £1.95bn for the redress, but the final bill could be even higher.
So while Lloyds is arguably the most popular bank among UK investors, it’s far from risk-free.
HSBC carries more international risk, in particular its Asia and China exposure, plus the Hang Seng privatisation. That gives it more diversification, but also more moving parts to watch.
NatWest sits somewhere in the middle. It’s still closely tied to the UK mortgage market and broader credit cycle, but doesn’t have the same exposure as Lloyds.
So what’s the verdict?
My view’s simple. NatWest looks the most appealing for pure income because it combines the highest forecast yield with a relatively straightforward risk profile.
Lloyds has the long-term reliability many investors like, while HSBC may suit those who want diversification.
In the end, all three have unique attributes that are worth a closer look, depending on whether you value income, safety, or a mix of both.
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Mark Hartley owns shares in Lloyds Banking Group and HSBC Holdings.
