Lloyds Banking Group (LSE: LLOY) shares are still in a slump. But on the bright side, it means dividend yields look good. And they could be getting better.
It looks like cash payouts from FTSE 100 dividend stocks should rise for 2023. And forecasts suggest we could see an all-time record in 2024.
They reckon total ordinary dividends from our top-drawer income shares could exceed £89bn.
With average FTSE 100 dividends expected to be covered more than two times by earnings, are we in one of the best times to buy dividend stocks ever? I think we might be.
Rising bank dividends
It looks like bank shares could lead the way in earnings and dividend increases. So how does my old favourite, Lloyds, look?
The bank is on a forecast dividend yield for 2023 of 6% to 6.5%, depending on who you ask. But the brokers are consistent in predicting rises for the next few years, and the yield could reach 8% by 2025.
The City expects Lloyds to record modest, but steady, rises in earnings in the next three years. If that happens, then I think these dividend hikes could be on the cards.
At the halfway stage in 2023, Lloyds lifted its interim dividend by 15%. If it does the same for the final payment, that could mean a total yield of 6.5%.
Cloudy horizon
I’d be wary of putting too much faith in dividend forecasts, mind.
For one thing, we really haven’t seen the full effect that high interest rates could have on bad debt provisions for the banks.
For the UK’s biggest mortgage lender, higher mortgage rates should be good. But we must set it against rising defaults from existing borrowers, and new customers drying up.
And then we face pretty poor economic forecasts for the next few years too.
It all adds up to what looks like weak market confidence in Lloyds, and it shows in the share price.
Bigger is better?
Still, I take comfort from the tighter banking regulation that came from the great crash of 2008.
New liquidity rules, and Bank of England stress tests, make me think a repeat is far less likely. Making the banks carry a good bit more ready cash these days has to be a good thing.
That shows in the crisis that’s just hit the much smaller Metro Bank, which reports suggest could struggle to come up with the £350m it needs to refinance some maturing debt.
After the 2008 crash, many investors were touting the so-called challenger banks as future leaders. But looking back, I’m more convinced than ever that the most important thing in a bank stock is sheer financial size.
Buy more?
So what’s my bottom line? Will I buy more Lloyds shares?
I’m well aware of the risks, and the cyclical nature of bank stocks adds to them. But I still see the big banks as cash cows, and I want some of that.
So, I am likely to buy more Lloyds bank shares, as long as the price stays low.
