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With interest rates falling from recent highs, I think dividend shares are back in fashion in 2026. Two of the biggest names on my own watchlist are Lloyds (LSE: LLOY) and GSK (LSE: GSK).
Both are large, steady dividend payers that have enjoyed strong recent share price runs, which makes them worth a closer look for income investors.
Lloyds shares flying high
Lloyds has had a strong year with its shares sitting around 100p as I write late on 9 January following a 85.5% gain in the last 12 months.
Higher interest rates have helped the company earn more from loans, and the bank has been happy to share some of that with investors.
Despite the strong year, there are still clear risks. Lloyds is very focused on the UK compared to global banking peers like HSBC. A weaker housing market or a jump in bad debts could hit profits and put pressure on future dividends. Falling interest rates could also put pressure on its net interest margin as competition for loans heats up.
While some of the uncertainty around its motor finance scandal has cleared, regulatory risks remain an ever-present threat in the sector, which can have real impacts on future payouts.
Rebounding GSK nears 52-week high
GSK has also had a strong run. The company’s shares are changing hands for 1,882p which isn’t far from a 52-week high. The last month gain of 39.4% has been underpinned by more confidence around its medicines pipeline and reduced trade tariff fears.
New treatments, including promising work in areas such as hepatitis B and vaccines, are helping to build a solid pipeline. That’s crucial for the company’s earnings base and future dividends.
That said, drug development is never simple. Trials can fail, regulators can say no, and the company faces patent expiries on some existing products later in the decade.
If new medicines don’t progress as planned, profits and dividend growth could both slow and impact on payouts to investors.
Valuation
To me, Lloyds looks fairly priced rather than cheap. The company’s price-to-book (P/B) ratio of 1.3 is in line with HSBC (1.4) and NatWest (1.2), but higher than Barclays (0.9). Similarly, on a dividend yield basis, its 3.3% figure is similar or slightly below peers.
GSK is currently yielding around 3.4% with a price-to-earnings (P/E) ratio of 14.1. That compares favourably to AstraZeneca with a P/E ratio nudging 32, but remains in line with the broader Footsie average.
My verdict
Both Lloyds and GSK look like classic dividend shares for investors to watch closely in 2026. They combine regular income with strong recent share price gains and clear strategies, albeit in very different industries.
Still, nothing is guaranteed. Lloyds remains tied to the health of the UK economy via the performance of its loan book, while GSK must keep progressing its research and development efforts.
Based on classic investment metrics, I don’t think either of these stocks is undervalued. However, they are solid dividend shares that are worth considering for investors seeking to add more quality and yield to their portfolios in 2026.
