Lloyds shares have risen 80% in a year. How many more do you now need to target £100 of monthly passive income?
Lloyds Banking Group (LSE:LLOY) shares were the tenth-best performer on the FTSE 100 in 2025. During the year, the bankâs share price outperformed those of many of the âsexyâ tech stocks that Silicon Valley has to offer. Thatâs pretty good for a âboringâ bank thatâs been around since 1765.
Whatâs more, it also paid 3.33p a share in dividends. It means those who bought on the first day of trading in 2025 have enjoyed an impressive yield of 6.1%. However, since 31 December 2024, its share price has risen by 80%. It means the yieldâs dropped significantly. Letâs take a closer look.
Up and down
Since the pandemic, when all UK banks were instructed by the Bank of England to restrict payments, Lloyds has been steadily increasing its dividend. For 2025, the dividend is expected to be 80% higher in cash terms than it was in 2021.
But as the table below shows, despite this impressive rise, its share price has increased by so much that the stockâs yield has dropped below 4%, having been close to 6% for most of 2023 and 2024.
| Financial year | Share price (pence) | Dividend (pence) | Yield (%) |
|---|---|---|---|
| 31.12.21 | 47.80 | 2.00 | 4.2 |
| 31.12.22 | 45.41 | 2.40 | 5.3 |
| 31.12.23 | 47.71 | 2.76 | 5.8 |
| 31.12.24 | 54.78 | 3.17 | 5.8 |
| 31.12.25 | 98.24 | 3.60 (forecast) | 3.7 |
At the start of 2025, those looking to generate £100 a month in passive income would have needed to own 37,855 shares. Today (9 January), they would have to hold 4,552 fewer, assuming the 3.6p dividend forecast for 2025 is accurate. However, to achieve the same result — £1,200 in annual dividend income — they would now cost £12,476 more.
| Date | Share price (pence) | Dividends (pence) | Shares owned (no.) | Dividend income per year (£) | Cost of shares (£) | Yield (%) |
|---|---|---|---|---|---|---|
| 31.12.24 | 54.78 | 3.17 | 37,855 | 1,200 | 20,737 | 5.8 |
| 9.1.26 | 99.64 | 3.60 (forecast) | 33,333 | 1,200 | 33,213 | 3.6 |
Of course, shareholder returns cannot be guaranteed.
Cause for concern
To be honest, Lloyds shares are now too expensive for my liking.
Based on the consensus forecast of analysts, earnings per share will be 11.3p in 2027. This implies a forward price-to-earnings ratio of 8.8, which I donât have a problem with. Based on history and others in the sector, a multiple at this level appears reasonable to me.
However, I believe the forecasts are too optimistic. I fear that investors have priced in too much of this performance improvement that, in my opinion, is unlikely to materialise.
| Measure | 2024 (actual) | 2027 (forecast) | Change |
|---|---|---|---|
| Net income (£m) | 17,117 | 21,252 | +24% |
| Total costs (£m) | 10,341 | 10,322 | – |
| Net profit (£m) | 4,477 | 6,820 | +52 |
Iâm not convinced that the bank will be able to improve its net interest margin by 0.44 percentage points over a period when most economists are expecting interest rates to fall. Neither do I think it will be able to reduce its cost-to-income ratio from 60.4% to 48.7%. I believe itâs too reliant on the UK economy, which isnât growing very quickly at the moment.
Final thought
Donât get me wrong, I think the bankâs well managed and has lots going for it. But, in my opinion, itâs not worth £58.9bn, which is its current stock market valuation.
This makes me conclude that, although Lloyds is still offering a yield above the FTSE 100âs 3.1%, its 2025 share price rally means there are plenty of other stocks currently available offering a better return. And ones that are more attractively priced.
The post Lloyds shares have risen 80% in a year. How many more do you now need to target £100 of monthly passive income? appeared first on The Motley Fool UK.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
