My Lloyds (LSE: LLOY) shares have delivered both robust capital growth and a steady stream of dividends since I bought them.
I made two separate purchases in 2023, buying 9,259 shares in total at an average entry price of just under 44p per share.
I thought they looked great value, trading at around six times earnings and offering a dividend yield exceeding 5%. The balance sheet looked solid, and with the UK economy showing signs of recovery post-pandemic, the outlook seemed promising.
Nicely-valued stock
My timing was pretty good. Over the past year, the Lloyds share price has climbed around 35%. It’s up almost 60% over two years, with all dividends on top.
It might have done even better but for the motor finance mis-selling investigation, which hit Lloyds relatively hard through its Black Horse division. In response, the bank’s set aside more than £1bn to cover potential compensation claims. For all we know, the total bill could be a lot higher.
Despite this setback, the share price now stands at just under 74p, a gain of about 68% on my initial investment.
The bank’s Q1 2025 results, published on 1 May, showed a 7% drop in pre-tax profits to £1.53bn due to higher costs, but still reaffirmed full-year guidance.
The board also lifted its bad debt provision from £57m to £309m, with a £100m adjustment for Trump’s trade tariffs. Maybe since last week’s UK trade deal that won’t be needed. It wasn’t the most thrilling update but markets shrugged it off.
Potential share buybacks
I’ve received three dividends so far, in September 2023 and in May and September last year. In total, I’ve received a modest £303 but I’ve put them to good use.
Reinvesting these dividends has added 571 shares to my holdings, lifting my total to 9,259. I’ll get another payment on 20 May, amounting to 2.11p per share. That should give me with a further £195. Reinvested, this will purchase 246 additional shares, increasing my total to 9,505.
That number will climb and climb, as I reinvest every dividend, every May and September. Hopefully for years and years.
Combining capital appreciation and dividends, my initial £4,000 stake has already grown to £7,264. Or £7,459 after the upcoming dividend. That makes a total return of more than 86% in less than two years. That potential outperformance is why I buy individual stocks rather than funds.
Risks on the horizon
But it’s important to acknowledge potential risks. The motor finance mis-selling scandal might have a shock in store. Additionally, anticipated interest rate cuts by the Bank of England may compress net interest margins, potentially impacting profitability.
Steady growth ahead
Yet I remain optimistic about Lloyds’ long-term prospects. The shares currently trade at 11.6 times earnings, with a trailing dividend yield of 4.3%. Forecasts suggest the yield could hit 4.71% this year and 5.6% in 2026, although these aren’t guaranteed.
Analyst sentiment’s cautiously positive too. The 17 analysts providing one-year share price forecasts have a median target of 79.94p, indicating a modest potential 8% increase from current levels.
Like them, I don’t anticipate explosive growth. However, I believe Lloyds is well-positioned to deliver consistent dividends and steady growth for me over the long term. I’m hoping this is only the start.
