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An estimated 2.3m people are believed to own Lloyds Banking Group (LSE:LLOY) shares. This means it has more shareholders than any other UK company. And although the group’s share price has done rather well over the past five years – it’s nearly doubled since August 2019 – I suspect most own the stock for its above-average dividend.
Then and now
In 2020, due to pandemic-related restrictions imposed by the Bank of England, Lloyds was limited to paying a dividend of 0.57p a share. However, it’s been increased every year since.
Based on its 2024 payout, the stock’s currently (26 August) yielding 3.8%. The average for the FTSE 100 is 3.4%.
But the bank’s increased its interim dividend for 2025 by 15.1%. This is a strong indication that this year’s payout will continue the recent run of increases.
| Financial year | Interim dividend (p) | Final dividend (p) | Total dividend (p) |
|---|---|---|---|
| 2020 | – | 0.57 | 0.57 |
| 2021 | 0.67 | 1.33 | 2.00 |
| 2022 | 0.80 | 1.6 | 2.40 |
| 2023 | 0.92 | 1.84 | 2.76 |
| 2024 | 1.06 | 2.11 | 3.17 |
| 2025 | 1.22 | TBC | TBC |
Indeed, analysts are forecasting a total payment to shareholders in 2025 of 3.5p. If they’re right, the forward yield increases to 4.2%.
For 2026 and 2027, the ‘experts’ are predicting dividends of 4.07p and 4.66p respectively. This pushes the implied yield up to 5.6%.
| Financial year | % |
|---|---|
| 2025 forecast yield | 4.2 |
| 2026 forecast yield | 4.9 |
| 2027 forecast yield | 5.6 |
In summary, a £10,000 investment could generate dividend income of £1,458 over the next three years.
Seeing into the future
Of course, these are just forecasts. Nobody knows for sure what’s going to happen. This is particularly true for the banking sector where earnings can be volatile as they’re often impacted by macroeconomic conditions.
In the case of Lloyds, a UK downturn would likely increase the possibility of loan defaults and dampen the level of new business for the bank. There’s also been speculation that the Chancellor might impose some form of windfall tax on the sector’s profits to help plug a gap in the nation’s finances.
However, a forecast of rising dividends is an indication that analysts believe the prospects for Lloyds are encouraging.
No thanks
But as impressive as these yields might be, I don’t want to invest. In my opinion, there are better opportunities elsewhere, including other banking stocks.
For example, HSBC is currently yielding 5.1%. It also has a global presence, which means it’s less reliant on the UK (unlike Lloyds) where some economic indicators — most notably the Consumer Prices Index — are indicating there may be problems ahead.
I think the recent Lloyds share price rally — its stock has risen 52% since the start of 2025 — means its shares have become expensive. This can be seen from a comparison of the price-to-earnings ratios of the FTSE 100’s five banks, which shows Lloyds has the highest. Based on the past 12 months, it’s now twice that of HSBC.
This is likely to concern income investors less than those more interested in capital growth. Even so, their money could earn a higher return elsewhere. And there’s little point buying a stock with an above-average yield if there are strong indications that it might be overvalued.
For these reasons, Lloyds shares are not for me at the moment.
