Lloyds Banking Group (LSE:LLOY) shares have delivered some pretty decent dividends over the years. This is just as well given that its share price has cratered, which has, in turn, eliminated their chance to make any capital gains.
During the past five Covid-disrupted years Lloyds’ share price has fallen 7% in value. And over a 10-year horizon the FTSE 100 has dropped a jaw-dropping 40%.
Still, the large dividends the bank has delivered in that time have cushioned the blow for investors. And, pleasingly, shareholder payouts are tipped to continue rising through the next few years, pushing the yield to index-beating levels.
| Year | Dividend per share (f) | Dividend yield |
|---|---|---|
| 2023 | 2.76p | 5.9% |
| 2024 | 3.18p | 6.8% |
| 2025 | 3.55p | 7.6% |
As the table shows, the dividend yield here soars above the FTSE index’s forward average of 3.8% for 2025. If dividends forecasts prove correct and the bank’s share price moves higher, I could end up with some meaty returns.
So how realistic are the dividend estimates for Lloyds shares? And should I buy the Black Horse Bank for my portfolio in 2024?
Strong dividend forecasts
Shareholder payouts have rebounded strongly following the pandemic when the Bank of England demanded cuts to bank dividends. And based on current profits forecasts, Lloyds looks in good shape to keep sharply hiking cash rewards.
For 2024 and 2025, predicted dividends are covered 2.5 times by anticipated earnings per share. This is comfortably above the widely accepted security benchmark of 2 times.
I’m also encouraged by the healthy state of the bank’s balance sheet. This could help it to continue paying large dividends even if earnings disappoint.
The company’s Common Equity Tier 1 (CET1) capital ratio stood at a strong 14.6% as of September.
But is it a buy for me?
So on balance, the dividend estimates for Lloyds shares look pretty robust, and certainly for 2024. However, I need to weigh up whether the potential for more large dividends outweighs the possibility of further share price losses.
For me the answer is no. In fact, it’s difficult to see the FTSE 100 bank breaking out of its long-term downtrend.
In its favour, Lloyds has significant brand power that challenger banks like Revolut and Metro Bank can only dream of. This allows it to retain old customers and add new ones pretty effectively.
Yet the threat posed by digital and challenger banks (along with building societies) is still considerable and threatens to continue eroding long-term revenues and margins. These new kids on the block are expanding their services and now offer many similar products to high street banks.
The UK’s weak economy — which could hit loan growth and create large loan impairments — poses another large threat to Lloyds’ profits and its share price.
Recession risks are rising for 2024, while major structural problems (like labour shortages, low productivity and trade frictions) threaten the economy over the longer term.
While Lloyds dividend forecasts are highly attractive, I’d still rather buy other UK stocks for passive income.
