Lloyds Banking Group (LSE: LLOY) shares have soared 71% since the start of 2025. And if we believe the most upbeat broker forecasts, they could soon get close to doubling.
That’s with a top-end target of 110p on the shares. So is the 2025 bull run set to keep on steaming ahead? I’m not so sure.
Against that optimistic target, the average is only 96p — just a few pennies ahead. Rather than more investors piling in before the end of the year, it wouldn’t surprise me to see some profit-taking knocking Lloyds back a bit.
In fact, Lloyds shares have already pulled back a few percent in the past couple of weeks.
The big killer?
There’s one key thing I think could turn some investors away from Lloyds shares in 2026. And that’s the dividend. I had the dividend in mind when I first bought Lloyds shares even before the 2020 stock market crash. I was looking at high yields, from Lloyds and the rest of the depressed bank sector.
As well as a nice bit of passive income, there was another factor. The big yield, coupled with a very low price-to-earnings (P/E) ratio, convinced me the shares were seriously undervalued.
Dividend yield
Right now, after the 2025 Lloyds share price climb, we’re looking at a forecast dividend yield of only 3.6%. And that’s not much higher than the current FTSE 100 average yield. It doesn’t come close to the 8.7% forecast from Legal & General, or the 7.4% on the cards at M&G. Even HSBC Holdings, with a forward 4.5%, looks set to pay more than Lloyds in the current financial year.
So yes, as we head into 2026, I really could see some long-term dividend investors rebalancing their portfolios away from the banks that have served so well over the past five years.
Time to get out?
So I bought Lloyds shares mainly for the dividend. And that’s not so great now compared to some of today’s big payers. Does it mean I plan to sell and buy something else instead? No. Because I can see still Lloyds rewarding long-term investors for years to come.
Forecasts have earnings and dividends continuing to grow in the next few years. If they’re right, the dividend yield could be back up to 5.2% by 2027.
Crucially, the predictions mean annual dividend rises of around 15% a year for the next three years. The core thing I look for in a dividend stock is a progressive payout rising faster than inflation — and this would smash through even today’s inflation.
Rocky year?
I still see perhaps a weak year ahead. The forecast P/E of 14 for the current year looks a bit high to me. And I see the biggest risk in early 2026 as an accelerating sell-off. I’d be surprised to see Lloyds shares climb much higher than their mid-December level — at least for a while.
But seeing the forecast P/E falling under 10 again for next year reinforces Lloyds as a long-term hold for me.
