Here’s how many Lloyds shares I’d need to buy for a £100 monthly income!

Offering a higher dividend yield than the average across FTSE 100 stocks, are Lloyds shares worth buying for passive income today?

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It’s been an underwhelming year for investors in Lloyds (LSE:LLOY) shares. The FTSE 100 bank has been broadly stuck in a downtrend since mid-February, culminating in the Lloyds share price falling nearly 5% in 2023 so far.

Yet, the upshot is that the Black Horse Bank’s dividend yield has now risen to nearly 5.6%. This may pique the curiosity of passive income investors considering the Footsie’s average yield is considerably lower, at under 3.9%.

So, how many Lloyds shares would I need to secure the equivalent of £100 per month in cash payouts? And does the bank stock deserve consideration from potential investors today?

Let’s explore.

Dividend income

Currently, the Lloyds share price stands at 45p. Accordingly, with a target of £1,200 a year in dividend payments, I’d need to buy 47,790 shares to secure my desired second income.

That would cost me a grand total of £21,505.50, which is a lot to put in a single stock for investors managing smaller portfolios.

Indeed, such investors should consider diversifying their positions across multiple companies and sectors to manage their risks. After all, no dividends — including those distributed by Lloyds — are ever guaranteed.

That said, the bank’s forecast dividend cover of 2.7 times anticipated profits looks very healthy. This is well above the figure of two times that generally indicates a robust margin of safety.

Valuation

However turning to the question of valuation, arguably Lloyds doesn’t compare favourably to its major FTSE 100 rivals at present.

Using the price-to-book (P/B) ratio, which is traditionally seen as a better tool to value bank shares, only HSBC shares are more expensive than Lloyds shares today of the major Footsie banks.

FTSE 100 bankP/B ratio
Barclays0.39
NatWest0.60
Lloyds0.64
HSBC0.77

Worryingly for Lloyds shareholders, HSBC has delivered stronger returns than its more domestically-focussed competitor recently. It’s important to view today’s respective valuations in that context.

Safe as houses?

As Britain’s largest mortgage lender, Lloyds has particularly high exposure to the UK housing market. As such, the group faces some notable risks.

According to its own forecasts, UK house prices will plummet 5% over the course of this year before tumbling by another 2.4% in 2024.

Rising interest rates have been a central factor behind the property market’s woes. It could take a while before the Bank of England declares victory in the battle against inflation and has the confidence to loosen monetary policy again.

Conditions appear to be ripe for a possible stand-off in 2024 between home buyers concerned about affordability and sellers reluctant to slash asking prices. I’m concerned that sluggish housing market activity could translate into a sluggish share price trajectory for the bank.

What I’m doing

I already own Lloyds shares and admittedly they haven’t been among my portfolio’s big hitters in 2023.

That said, I do appreciate the regular dividend income. Robust forward cover and the prospect of higher future yields is enough to convince me to hold my position for now.

But, in light of the risks, I won’t be adding more today. Instead I’m looking for other dividend stocks that offer better prospects of capital growth, in my view, as well as passive income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Carman has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and 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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