Buying 10,000 Lloyds shares generates a passive income of…
Lloyds‘ (LSE:LLOY) shares are by far one of the most popular investments in the UK. While the banking stock hasn’t been the best performer over the years, its large size, stability, and critical place in Britain’s economy make it quite attractive among more conservative investors. Not to mention, the group’s 4.1% dividend yield, which makes it an alluring source of passive income, especially now that profits are benefiting from higher interest rates.
But how much passive income can investors make with this stock? Let’s explore.
Inspecting Lloyds’ dividend
At the current share price, anyone with around £7,800 to spare can snap up 10,000 shares in Lloyds today. That’s a nice big round number. And with trailing 12 months dividends per share at 3.17p, such an investment would instantly unlock a passive income of £317 a year.
Of course, this calculation assumes that Lloyds doesn’t cut shareholder payouts moving forward. But looking at the latest analyst forecasts, the consensus suggests that doesn’t seem likely. Stronger earnings are paving the way for excess cash flows. As such, dividends by the end of 2025 are expected to reach 3.46p before climbing even further the following year to 4.12p.
In other words, by 2026, those 10,000 shares could be generating closer to £412. And that number could be even higher for those who decide to reinvest any dividends received along the way.
With that in mind, is this a no-brainer stock to buy for income-seeking investors?
Taking a step back
While the prospect of earning a market-beating dividend yield’s exciting, it’s important to remember that even the biggest businesses have their risks. Lloyds’ financial position looks robust, but there’s the upcoming potential fallout surrounding the UK motor finance scandal.
Management has already put aside £1.2bn to cover any potential legal penalties should the courts rule against lenders. But if legal experts are correct, the fallout could be considerably larger, potentially compromising profits and, in turn, dividends.
Furthermore, as the UK’s largest mortgage lender, Lloyds is highly sensitive to the British housing market. Conditions have generally been improving as mortgage rates have tumbled thanks to interest rate cuts from the Bank of England.
However, with the recent increase in Stamp Duty kicking in, mortgage approvals in April took a notable hit, falling to 60,463 versus the 63,000 analysts were expecting. Is that a disaster? No. But it does make Lloyds’ life harder in terms of achieving growth and expanding its dividend.
The bottom line
As a business, Lloyds isn’t likely to disappear any time soon. As a stock, the short-term outlook’s growing increasingly uncertain, in my opinion. So despite its popularity and seemingly lucrative dividend potential, I’m not rushing to add it to my portfolio today.
The post Buying 10,000 Lloyds shares generates a passive income of… appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
More reading
- Prediction: in 12 months the high-flying Lloyds share price could turn £10,000 into…
- 2 dirt cheap FTSE 100 shares! Which should investors consider in June?
- Can Lloyds’ share price keep soaring? 4 reasons why I think the answer’s ‘NO!’
- Here’s why it could soon be make-or-break time for the Lloyds share price
- Lloyds shares recently hit a 52-week high — is it too late to consider buying?
Zaven Boyrazian 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.
