I love my Lloyds (LSE: LLOY) shares. Just a week or two ago I was sitting on a total return of roughly 160%, with dividends reinvested. And that’s in just three years.
The FTSE 100 bank looked absurdly cheap when I added it to my SIPP in early 2023. It traded on a price-to-earnings ratio of around six while yielding close to 5%. Since, then profits have soared. On 29 January the bank reported a 12% jump in full-year 2025 profits to £6.7bn, comfortably ahead of the £6.4bn analysts expected. That came despite setting aside £800m to cover potential motor finance mis-selling compensation. The board also announced a £1.75bn share buyback.
FTSE 100 dividend growth hero
That may have marked the high point, at least for now. In early February, Shore Capital downgraded Lloyds to Sell after its strong run. It said Lloyds may struggle to boost its return on tangible equity due to competitive pressures, while recent “supernormal returns” might eventually attract higher taxes.
I like that phrase ‘supernormal returns’. It’s exactly what I want from a stock pick. But I can see the risks. There was speculation before last November’s Budget that the chancellor might impose a windfall tax on banks. If the Iran war drags on and public finances deteriorate, it might still happen.
The conflict itself adds more uncertainty. It could end suddenly or grind on for months. Nobody knows. So far the Lloyds share price has held up reasonably well. It’s down just 6% over the last month. FTSE 100 rival Barclays, with its international exposure, has fallen almost 15%. Over 12 months, Lloyds is up 35%.
If the situation worsens though, even Lloyds won’t escape the wider fallout. A spike in oil prices or a deeper economic slowdown would quickly feed through to the UK economy. So should I sell my Lloyds shares now?
Stock market uncertainty
That’s not how we invest at The Motley Fool. We aim to buy shares with a long-term view and plan to hold through thick and thin, provided the original investment case holds. That’s especially true for dividend stocks like Lloyds.
The share price may slow after such a strong run. That wouldn’t surprise me. What matters now is the income stream. In 2024 Lloyds paid a total dividend of 3.17p per share. The board lifted that by 15.1% in 2025 to 3.65p. Today the trailing yield sits at 3.88%.
Forecasts suggest Lloyds could pay a total dividend of 4.18p in 2026, another bumper increase of 14.5%. Based on today’s share price of roughly 94.6p, that implies a forward yield of about 4.4%. For me, the numbers look even better. My original purchase price was 46p. On that basis, my personal forward yield is close to 9%.
That’s the beauty of long-term investing. Income builds over time as dividends compound and grow. Share price growth is on top. Over time I believe I’ll get a fair bit of both, albeit with some ups and downs along the way.
Volatility is the price investors pay for the higher long-term returns offered by equities. Lloyds is worth considering today and there are plenty more dividend growth bargains I’m keen on right now. Always with the same long-term view.
