Lloyds (LSE:LLOY) is one of the FTSE 100‘s most popular shares for passive income. Due to its relatively modest growth prospects, investors chiefly buy it for dividends. And boy has it delivered over the last decade!
From 2016 onwards, dividends have risen at an annual growth rate of 5%. It’s grown payouts every year barring the pandemic period, when regulators temporarily stopped bank shares from paying dividends, prompted some reduced payouts:
| Year | Dividend per share |
|---|---|
| 2025 | 3.65p |
| 2024 | 3.17p |
| 2023 | 2.76p |
| 2022 | 2.4p |
| 2021 | 2p |
| 2020 | 0.57p |
| 2019 | 1.12p |
| 2018 | 3.21p |
| 2017 | 3.05p |
| 2016 | 2.55p |
Lloyds’ shares impress when it comes to yields too, even factoring in those disruptions. Over the past decade, the dividend yield has averaged 5.6%. That comfortably beats the broader FTSE 100‘s long-term average of 3%-4%.
The thing is, past performance isn’t a guarantee of future returns. So can the bank continue paying market-beating dividends?
A 5.9% opportunity
I’m pretty optimistic they can. And so are City analysts. They’re expecting Lloyds’ shares to pay increased dividends every year over the medium term, resulting in yields of:
- 4.3% for 2026.
- 5.1% for next year.
- 5.9% for 2028.
What makes the ‘Black Horse Bank’ such a dividend powerhouse then? Like other retail banks, it provides a range of financial products, from current and savings accounts to credit cards and general insurance. This diversified approach to offering everyday essential services provides reliable cash flows it can use to pay dividends.
Lloyds’ focus on the UK high street specifically has other advantages for dividend investors. The market here is mature with limited growth potential, meaning the bank leans towards returning excess cash via dividends instead of reinvesting in the business. Lloyds’ market-leading positions also helps it to sustain dividends during downturns.
Cash king
What’s more, unlike HSBC and Barclays for instance, this FTSE 100 operator doesn’t have an investment bank. The advantage? More predictable earnings, which in turn makes dividend payouts simpler to sustain.
Critically for dividends, Lloyds is also required to maintain a robust balance sheet for regulatory purposes. With that strength comes its ability to make large and growing shareholder payouts and significant stock buybacks.
Today, its CET1 capital ratio is 13.4%, which bodes well for future dividends. Presumably then, Lloyds shares are a ‘no-brainer’ for investors seeking dividends. Right?
To be honest, I’m not so sure…
Are Lloyds’ shares a buy?
It’s not that I’m expecting dividends to suddenly crash. It’s just that investors need to also consider the outlook for Lloyds’ share price before investing. And I’m concerned the bank’s at risk of a sharp price correction.
Today, the bank trades on a price-to-book (P/B) ratio of 1.2 times. That’s well above the 10-year average of 0.9, and fails to reflect the rising threat the Iran war poses as UK growth stalls and inflation rises. In my view, it also doesn’t channel other threats like thumping motor finance costs and the growing influence of challenger banks.
It’s also worth remembering other FTSE 100 banks such as HSBC have many of the same dividend strengths, but which trade more cheaply and have greater yields. I can see the appeal of buying Lloyds’ shares for income, but I personally prefer to buy other dividend shares today.
Should you invest £5,000 in Lloyds Banking Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group Plc made the list?
Royston Wild owns shares in HSBC.
