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One of my best recent investment decisions was putting £4,000 in Lloyds (LSE: LLOY) shares in 2023, inside a SIPP. Although in one respect it was my worst. I should have invested a whole heap more.
Like the rest of the FTSE 100 banks, Lloyds Banking Group has had a terrific run. The whole sector has benefitted from higher interest rates, which have allowed banks to widen net interest margins, the gap between what they pay savers and charge borrowers.
Lloyds has been making plenty of money. Pre-tax profit rose 12% to £6.7bn in full-year 2025, up from £5.97bn in 2024. The board made sure investors have shared in that success, with total distributions of £3.9bn, comprising dividends and share buybacks.
Booming FTSE 100 sector
There have been bumps along the way, as always. The biggest was the motor finance mis-selling scandal, which hit Lloyds harder than its major rivals due to its exposure through the Black Horse division. But the Lloyds share price is up 64% over the last year and 150% over two. Personally, I’m up 127% from share price growth alone, with dividends on top.
My original £4,000 bought me 9,259 shares at an average price of around 43p each. Today, Lloyds shares are worth roughly 103p apiece.
I’ve also reinvested every dividend I’ve received, which has bought me an additional 981 shares so far, lifting my total stake to 10,240. This brilliant combination of growth and income has transformed my £4k into £10,552. That’s a total return of 164%. Not bad in under three years.
The next dividend hits my SIPP on 19 May and will be worth 2.43p per share. That should hand me another £250 or so, and I don’t have to do anything to receive it. That’s the joy of generating passive income from FTSE dividend stocks. Dividends like that hit my SIPP twice a year automatically, although they’re never guaranteed. Lloyds has to generate the cash to pay them.
Buybacks, dividends, growth
The trailing yield has fallen to around 3.5% due to the soaring share price, but should revive over time. The board remains generous, lifting the recent interim payout by 15%. The forward yield for 2026 is 4.1%.
I’m around 10 years away from my likely retirement date. If that forward yield of 4.1% grows at 15% annually, my £10,500 stake could be worth £21,991 after a decade. That’s just from reinvested income. If the share price also grows at 7% a year on average, the total value could hit £43,260.
With a 4% yield, that would potentially produce around £1,730 a year in dividends, which I could draw as retirement income without touching my capital.
Of course, my figures are speculative. Profits could slow, markets could crash, falling interest rates could squeeze margins. This could hit both dividends and share price growth. There are always risks when buying stocks but I still believe Lloyds is well worth considering, with a long-term view.
That’s why I’ve built a balanced portfolio of FTSE 100 dividend growth stocks like this, so if one underperforms, others can hopefully compensate. But my calculations show how investing in FTSE 100 blue-chips for the long run can build genuine wealth. Not just through share price growth, but dividend income too.
