Here’s how much income I’d get if I invested my entire £20k ISA into Lloyds shares

Harvey Jones bought Lloyds shares last year and is kicking himself for failing to buy even more of them. The dividend income is to die for.

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In June last year, I decided Lloyds (LSE: LLOY) shares were an unmissable buy at 45.06p so I bought 4,403 for £2k. The Lloyds share price dropped to 40.89p in September and this time my £2k picked up 4,856 shares.

Lloyds has since paid me two dividends of £40 and £172, which I automatically reinvested, lifting my total holding to 9,657 shares. My original £4k is now worth £5,200. That’s a total return of 30% in a year.

Top dividend stock

The Lloyds share price is up 19.35% over one year so I’m a happy bunny. Yet these are early days. I hope to hold this FTSE 100 stock for years and ideally decades, if all goes well.

My only regret is that I didn’t buy anywhere near enough Lloyds shares. No stock is without risk, but this looks safer than most. Since the traumas of the financial crisis, the big banks have built their capital strength and in the case of Lloyds, withdrawn from risky investment banking activities. Its common equity tier 1 (CET1) capital ratio was a solid 14.4% at the end of 2023. It has zero debt. It’s a far cry from the casino capitalism of yore.

I’ve been toying with the idea of throwing my entire Stocks and Shares ISA allowance into it. Is there anything to stop me?

FTSE 100 high-yielder

Today, Lloyds shares trade at 53.86p. That’s 31.7% more than I paid in September, which suggests that some of their recovery potential has been used up. They’re hardly overpriced though, trading at 9.36 times forward earnings. The price-to-book value has crept up from 0.6 to 0.7, but that’s still below the figure of 1 usually seen as fair value.

They offer plenty of dividend growth potential too. The trailing yield is 5.12%. The forward yield for 2024 is 5.43%. In 2025, analysts reckon the bank will yield 5.93%, nicely covered twice by earnings.

In 2023, the dividend per share climbed from 2.4p to 2.76p, a rise of 15%. Markets anticipate a smaller increase this year to around 2.93p per share. 

Investing £20k today would buy me 37,133 shares. They’d generate income of £1,088 in 2024. I can find higher-yielding stocks on the FTSE 100, but that’s still a solid rate of income.

Lloyds had a bumper 2023, posting pre-tax profits of £7.5bn and funding a £2bn share buyback. It may struggle to top that in 2024. When the Bank of England finally cuts base rates, that will squeeze net interest margins. We got an early taster in Q1, when margins fell 12% to £3.127bn, with mortgages taking the brunt amid tight competition.

I’m keen to increase my stake in Lloyds, but won’t go the full £20k. I’ll feed in another £5k this year though, taking advantage of any dips. This FTSE 100 dividend growth star has shown its potential over the last year. I can’t wait to see what it can do over 10 or 20 years.

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.

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended 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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