Lloyds Banking Group (LSE: LLOY) shares have gained some lost ground in 2024.
But good news comes with a catch, doesn’t it? In this case, it’s made it harder for investors today to build up a big enough pot to generate some passive income.
The Lloyds dividend yield has fallen as a result of the share price rise. Right now the forecast is at 5.2%. But if the shares hadn’t risen this year, we’d be looking at 6%.
Too late, then?
For every £1,000 a year in passive income we aim for, we now need around £19,200 in Lloyds shares. At the start of 2024, we’d have needed £16,000.
And anyone who bought at the low point in 2020 would have have needed only £8,600 to be looking at a forecast £1,000 from dividends this year.
Does that mean it’s too late to think of Lloyds as a long-term passive income champion? No, not a bit, but it does teach us a couple of things.
Two lessons
If we want to keep buying shares for years to come, we should want prices to fall, and not cheer when they rise. Billionaire investor Warren Buffett was spot on with that one.
And the sooner we start, the more chance we’ll have. So when shares are hammered by a stock market crash, selling up after prices have slumped isn’t likely to do us much good.
Those who went against the crowd and bought as many shares as they could when they were dirt cheap are the ones sitting pretty today.
Dividend outlook
Though the Lloyds dividend yield is lower today, 5.2% is still pretty decent. Cash ISAs surely won’t be able to match that for long, as Bank of England interest rates drop further.
And forecasts show the Lloyds dividend rising steadily in the coming years, along with earnings growth. If they’re right, the 2026 yield could hit 6.6%.
That’s a third lesson. A dividend that grows over the years can be worth a lot more in the long term than a one-off big yield today.
So how many then?
Let’s get to the point. How many Lloyds shares would I need to pocket that magic £1,000 a month? If I say an average 6% dividend, I’d need £200,000 invested. At today’s price, that’s nearly 360,000 Lloyds shares.
I don’t have anywhere that much, but it’s not cause for despair. Because I could get there by investing regularly.
A monthly investment of £500 could get me to my goal in 19 years. And that’s just on a fixed 6% dividend, with no share price growth or dividend raises.
Diviersify or risk it all
Would it be risky to invest the lot in one single stock for the next 19 years? Horribly risky, yes. We’ve seen how badly financial stocks suffer in economic shocks. And anything tied to the mortgage market will surely face more volatility.
But is it realistic to target at least a 6% average annual return from a diversified portfolio of UK stocks? I think so. In fact, my money’s on it.
