Forget Lloyds shares! I’d rather buy this FTSE 100 dividend growth stock

Dividends on Lloyds shares are tipped to rise strongly through to 2026. But Royston wild thinks this passive income hero is still a better buy for him.

| 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 female business analyst looking at a graph chart while working from home

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.

Lloyds (LSE:LLOY) shares are always in high demand among dividend investors. At first glance, it’s not difficult to see why.

High street banks offer essential services like loans, mortgages, credit cards and current accounts. As a consequence, they tend to enjoy stable cash flows they can then use to pay consistent dividends.

On top of this, the financial regulator demands that banks hold significant capital reserves, providing dividends with added stability.

Should you invest £1,000 in Bunzl Plc 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 Bunzl Plc made the list?

See the 6 stocks

Finally, the dividend yield on Lloyds shares is 6% for 2024, beating the 3.5% FTSE 100 average by a large distance. The yield marches to 6.2% and 7.1% for 2025 and 2026 too.

However, I wouldn’t touch the Black Horse Bank with a bargepole right now. If I was seeking dividends, I’d much rather add support services provider Bunzl (LSE:BNZL) to my portfolio.

Dividend growth

First, let’s take a look at Bunzl’s dividend forecasts for the next three years.

YearDividend per shareDividend growthDividend yield
202473.89p8%2.1%
202579.61p8%2.3%
202684.83p7%2.5%

As you can see, these dividend yields are substantially lower than those on Lloyds shares. But let’s look past the final column for a moment.

Instead, let’s look at annual dividend growth. If broker forecasts to 2026 are correct, Bunzl will have raised the annual payout for an astonishing 34 years on the spin.

Payout growth has been more impressive at Lloyds of late. It raised the full-year dividend 15% in 2023, far ahead of Bunzl’s near-9% rise.

But I’m not going to buy a stock just based on dividends.

Stunning returns

Income forms an important part of my investing strategy. A stock that pays a decent and growing dividend gives me money I can reinvest, a concept that — through the mathematical miracle of compounding — can allow me to grow my portfolio exponentially.

But dividends are only one part of the investing equation. The passive income a company provides can be negated by a stalling or reversing share price, resulting in an overall disappointing return.

Taking into account share price movements and dividends, Lloyds has delivered a paltry total shareholder return of 2% since 2014. That’s far below the 131% that Bunzl has provided in that time.

Share price movements since 2014.
Share price movements since 2014. Source: TradingView

Lloyds vs Bunzl

Past performance is not a guarantee of future returns. But I believe the contrasting performances of these FTSE 100 stocks will continue.

Sure, Lloyds is an industry giant in the UK, and has significant brand power it can leverage. But its growth potential is limited given Britain’s mature banking sector and the murky economic outlook. And Lloyds could face billions of pounds in fines if found to have mis-sold motor finance in recent years.

Both of these are likely to weigh on its share price and potentially dividends.

By contrast, Bunzl has considerable earnings possibilities as it continues its acquisition-based growth strategy. M&A strategies like this carry extra risk, but the firm’s strong track record is highly encouraging.

Bunzl also has considerable exposure to the enormous US economy, as well as operations in fast-growing emerging markets. If I had cash to invest today, I’d rather put it here than use it to buy Lloyds shares.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Bunzl Plc 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 Bunzl Plc made the list?

See the 6 stocks

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc and 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.

Our best passive income stock ideas

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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »