Lloyds‘ (LSE:LLOY) shares have had a phenomenal run over the last 12 months, rising 29.7% since June 2025. But with the momentum seemingly starting to slow in recent weeks, is the stock starting to look more interesting as an income play?
At today’s price, investing £1,000 buys 1,004 shares and unlocks £36.65 in annual passive income. Obviously, that isn’t a massive cash return. But analysts expect the payout to keep rising, with dividends on track to reach 4.28p per share by the end of 2026 and 5.05p by the end of 2027.
So should investors consider buying now?
Why Lloyds still looks interesting
Lloyds is still one of the UK’s biggest retail and commercial banks, so its fortunes depend on lending, deposits, mortgage activity, and the overall health of the domestic economy.
It’s no secret that the UK economy isn’t exactly in terrific shape right now. Nevertheless, Lloyds’ latest quarterly results were actually pretty encouraging.
The bank reported pre-tax profits of £2.0bn, up 33% year on year, while underlying net interest income rose 8% to £3.6bn and return on tangible equity reached a staggering 17%.
To top things off, management also reiterated its guidance for 2026, suggesting that while the share price may have slowed, the underlying business hasn’t.
For income investors, that’s terrific news. After all, if earnings rise, that leaves a lot more room for dividends to sustainably grow, as well as enjoying some potential share price gains as well.
So far, this sounds like a winning combo. But are these expectations realistic?
What to watch
In the first quarter, loans and advances to customers rose to £486.2bn, helped by growth in mortgages, credit cards, and commercial banking. That’s another signal showing the core engine of the business is still moving in the right direction.
However, it’s important to remember that, as with any business, nothing’s risk-free, especially when it comes to banks.
Lloyds’ current figures look strong. But that could quickly change if the health of the UK economy deteriorates further. Weaker consumer confidence and higher unemployment both undermine demand for mortgages and, in turn, weigh heavily on future earnings.
There’s also the ongoing uncertainty around motor finance commission redress, which management says still carries several moving parts, including response rates, operational costs, litigation, and other challenges. That risk could eat into profits or capital flexibility if it turns out to be far more expensive than expected.
The question investors have to ask themselves, is the risk worth the potential reward?
What’s the verdict?
Despite the economic headwinds, Lloyds’ shares still look like one of the more interesting income stories in the FTSE 100 universe. There are plenty of other higher-yielding stocks to pick from, but few that analysts believe could grow their dividend by 38% within the next two years.
That’s why I’m taking a much closer look at this bank stock as a potential addition to my passive income portfolio.
Should you invest £5,000 in Lloyds Banking Group Plc right now?
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Zaven Boyrazian does not hold any positions in the companies mentioned.
