How much do I need in Lloyds shares to earn a £1,000 yearly passive income?

Lloyds (LSE: LLOY) shares are flying. The FTSE 100 bank is up 75% in the last year and 140% over two. I only added the stock to my SIPP three years ago, so I’m thrilled. I didn’t expect that kind of growth. My prime motivation was the dividend income, and Lloyds has been doing pretty well on that score too. I’ve received a steady stream of rising dividends already and expect that to continue.

Lloyds has momentum on its side after 15 years struggling to escape the shadow of the financial crisis. But investing is cyclical, and nothing good moves upwards forever. Share price growth must surely slow at some point.

FTSE 100 momentum stock

Like all the big banks, Lloyds has benefitted from several years of high interest rates. This allows it to widen the margin between what it pays savers and charges borrowers. With base rates likely to fall further, that advantage will diminish, and profit growth could slow.

There’s another issue. The Lloyds share price is inevitably more expensive than when I first bought it in 2023. Then, the price-to-earnings ratio (P/E) made the stock look a steal at just 6.5. Today it’s up to 16.25. That’s still below the FTSE 100 average of 18, but it’s no longer in bargain territory. Forecast earnings put the forward P/E at 10.9, so I wouldn’t say it’s overvalued either.

It’s a similar story with the price-to-book ratio, which has climbed from 0.4 to around 1.3 since my purchase. Not expensive, but no longer cheap. I’m not selling, but I’m cautious about adding more today. A wider stock market correction or crash would be the perfect opportunity to top up.

Higher valuation, lower yield

When a stock rises, the yield usually falls. That’s the case here. My yield at purchase was around 5%. The shares are now forecast to pay a more modest 3.5% across full-year 2025. That’s disappointing for new investors, but here’s a sweetener. The board is generous, recently hiking the interim dividend by 15%. So that yield should rise over time. Indeed, it’s forecast to hit 4.1% across full-year 2026. As savings rates slide, that will look even more attractive relative to cash.

In 2026, Lloyds is forecast to pay a dividend per share of 4.01p. To generate £1,000 in passive income based on that, an investor would need to buy 24,938 shares. At today’s price of 101p, that’s an investment of £25,187. That’s a lot to put into just one stock. It’s always worth spreading the money around.

Other opportunities

I won’t add to my Lloyd shares today but there’s absolutely no way I’m selling them. I plan to hold them for years, and with luck, decades. And if we get a stock market correction or crash at some point, they’ll be at the top of my buy list.

In the interim, I’ll explore other income opportunities. There are plenty on the FTSE 100, notably Legal & General Group. Its forecast dividend yield is a bumper 8.3%. Based on that, I’d only need £12,050 shares to hit that £1k second income target. But that’s for another article.

The post How much do I need in Lloyds shares to earn a £1,000 yearly passive income? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Legal & General Group Plc and Lloyds Banking Group Plc. 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.

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