I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company’s dividend record knocks spots off Lloyds Banking Group’s, and it looks like decent value now with a yield of 8%.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian man shopping in a supermarket

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At first glance, Lloyds Banking Group (LSE: LLOY) looks like a great stock for passive income.

With the share price just over 59p, the forward-looking dividend yield’s around 5.8% for 2025. Shareholders have enjoyed a good run in 2024, so far.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I think that might have happened because of a general feeling that the economy’s improving.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Struggling with earnings

However, Lloyds is a cyclical business, and a glance at the multi-year financial record reveals a patchy performance for earnings and cash flows.

My fear is that after cycling up, the business may cycle down at some point. After all, City analysts expect a rebound in earnings next year after a weaker period in 2024. However, even after the predicted rise in 2025, earnings will only regain the level first achieved in 2021.

Are earnings actually looking toppy then? It’s possible. But overall, it’s the elevated uncertainty about Lloyds that keeps me away. However, the business and the stock may do well for shareholders over the coming years. If the increasingly benign general economic conditions we are seeing persist, Lloyds could prove to be a decent investment.

For me though, there are better opportunities to pursue. For example, I’m keen on Supermarket Income REIT (LSE: SUPR).

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Created with Highcharts 11.4.3Supermarket Income REIT Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The company’s a UK-based real estate investment trust focusing on grocery properties — as the name suggests.

It’s not a stock or a business to set the pulse racing, but that’s part of the point. I see the firm as operating in a steady and enduring sector leading to streams of consistent cash flow.

An impressive dividend record

That’s just what’s needed for paying investors steady income via dividends. Indeed, the multi-year record’s impressive here, with the dividend’s compound annual growth rate (CAGR) running at about 34%.

Property investing comes with its own risks, of course. We’ve seen big swings in the value of property over the decades, and in that sense it’s a cyclical sector, which adds a bit more risk for shareholders.

But Supermarket Income REIT performed well through the pandemic and kept up its shareholder payments, unlike many other businesses.

One of the great strengths is that the firm’s tenants operate enterprises with defensive qualities. People need to shop for groceries whatever’s happening to the economy.

In March, the company issued an optimistic outlook statement. Chair Nick Hewson said the UK grocery sector had been demonstrating “strong resilience” to the challenging macroeconomic environment.

The firm’s tenants “continue to grow”, strengthening their financial and operational performance by putting omnichannel supermarkets at the heart of their operations, Hewson said.

We’ll find out more from the company with the full-year earnings release due on 18 September.

In the meantime, with the share price near 75p, the forward-looking dividend yield for 2025’s around 8%. I think that looks attractive and would pile in with deeper research now with a view to owning a few of the shares for my diversified portfolio.

Should you buy Lloyds Banking Group shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

Kevin Godbold has no position in any of the shares mentioned. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »