Lloyds (LSE: LLOY) and Tesco (LSE: TSCO) are two of the UK’s most popular dividend shares. It’s easy to see why – both companies are very well known and currently sport attractive dividend yields. How much passive income could these shares generate for investors? Let’s take a look.
Substantial passive income
Let’s say I was to invest £2,500 in each of these shares today, for a total investment of £5,000.
At their current share prices (46.9p for Lloyds and 268p for Tesco) I’d get 5,330 Lloyds shares and 932 Tesco shares (note that these calculations ignore trading commissions).
Now, City analysts currently expect Lloyds to pay out 2.78p per share in dividends for 2023. Meanwhile, they expect Tesco to pay out 10.9p for the financial year ending 25 February 2024.
This means that I could be in line to receive dividends of around £148 from the banking giant and £102 from the UK’s biggest supermarket for their current financial years. So, my annual income from the two stocks, in the near term, would amount to around £250.
Timing of the payouts
When would I receive this passive income?
Well, Lloyds pays its first dividend for the year in September. It then pays its second in May of the following year.
Meanwhile, Tesco pays its first dividend in November and second in June of the next calendar year.
This means that I would receive my £250 in dividends between September 2023 and June 2024.
Dividends are never guaranteed
Now, it’s worth stressing that the dividend figures I’ve used above are just forecasts. And analysts’ forecasts can be off the mark at times. So there’s no guarantee that I’d receive income of £250 from these two stocks. It could be less than this. Companies can cut, suspend, or cancel their dividends at any time.
And inaccurate forecasts aren’t the only risk to consider here. Another is share price volatility. A fall in the share prices of these companies could offset my gains from income.
I wouldn’t expect to see a high level of volatility from Tesco shares (although we can’t rule this out). This is quite a ‘defensive’ company and its shares tend to be far less volatile than the UK market as a whole.
Lloyds shares are a different story though. This is a ‘cyclical’ company that’s exposed to the ups and downs of the UK economy (which isn’t doing so well right now). And its shares tend to be far more volatile than the broader market.
I’d buy other UK shares for diversification
I like them but given these risks, I wouldn’t want to only own these two shares. I’d want to own plenty of others too – in areas of the market such as healthcare, consumer goods, and technology – to give myself the best chance of investment success.
