To me, Lloyds Banking Group (LSE: LLOY) shares a negative characteristic with many other cyclical stocks: a patchy dividend record.
The valuation has made the company look cheap for ages. One of the prominent indicators is the dividend yield. With the share price near 43p, it’s running at just above 7% for 2024.
At first glance, a potential income like that for my portfolio looks like a no-brainer to snap up. But I just don’t trust it.
Here’s what the company has done with dividends since 2017:
| Year | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023(e) | 2024 (e) |
| Dividend per share | 3.05p | 3.21p | 3.26p | 0.57p | 2p | 2.4p | 2.76p | 3.16p |
| Dividend growth | 19.6% | 5.25% | 1.56% | (82.5%) | 251% | 20% | 14.8% | 14.6% |
The striking thing is the dividend in 2024 is forecast to be just a tiny bit more than it was in 2017. To me, that says: seven years to go nowhere.
In fairness, the bank did have to contend with the pandemic. Indeed, regulators strong-armed Lloyds to cut the dividend in 2020. But it’s what happened since that makes me uncomfortable.
Volatile shareholder income
The directors seemed to take the opportunity to rebase the dividend lower. That’s why the hefty looking rises of the 20s and those forecast so far have only led to dividend breakeven for shareholders.
My theory is the management teams running strong businesses don’t do that. Therefore, Lloyds must be weak. And it is. The firm is up to its neck in the cyclicality of its operations. So, we never know for sure when the next earnings, dividends, and share price plunge is coming.
Meanwhile, I’ve observed the stock market trying to deal with the cyclical uncertainty by keeping the valuation pegged low. If earnings rise from year to year, the valuation just seems to ease back further.
The share price chart tells the story, and goes a long way towards explaining the frustration this stock can stoke up among its shareholders:
Of course, my caution could be misplaced. If we enter a new age of general economic prosperity, Lloyds could grow its earnings and dividends like mad. The valuation could increase and that process could help fuel some mighty share price appreciation.
Steadier performance
However, I see too many risks to participate and would rather own a steadier dividend stock like National Grid (LSE: NG). With its share price near 1,039p, the forward-looking dividend yield is just below 6%.
The stock is not immune from risk. For example, the energy business faces tough regulatory scrutiny on both sides of the Atlantic. It also carries a lot of debt.
However, the dividend record appeals to me more than Lloyds’. Here’s what it looks like:
| Year to March | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024(e) | 2025(e) |
| Dividend per share | 45.9p | 47.3p | 48.6p | 49.2p | 51p | 55.4p | 58.4p | 59.9p |
| Dividend growth | (4.9%) | 3.07% | 2.6% | 1.21% | 3.68% | 8.77% | 5.33% | 2.6% |
If the firm makes its 2025 forecast, the dividend will have risen by just over 30% since 2018. That performance looks set to beat Lloyds without question, although there’s no guarantee rises will continue in the coming years.
Nevertheless, when it comes to dividend shares, I’d rather dig deeper into National Grid than Lloyds.
