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Lloyds vs Barclays: which is the best dividend stock?

Lloyds (LSE: LLOY) and Barclays (LSE: BARC) are two of the UK’s most popular stocks. But which is the better bank from a dividend-investing perspective? Let’s compare the two FTSE 100 giants.


Lloyds cut its dividend completely in the Global Financial Crisis and paid no dividend at all between 2008 and 2013. Yet in recent years, it has reintroduced its payment and lifted the figure significantly. Here’s a summary of Lloyds’ last four dividends and the estimates for this year and next.

FY2014: 0.75p
FY2015: 2.25p (+0.5p special dividend)
FY2016: 2.55p (+0.5p special dividend)
FY2017: 3.05p
FY2018 (estimate): 3.47p
FY2019 (estimate): 3.65p

There are several things to note here. First, with the Lloyds share price hovering around 62p, the bank currently offers a high yield. This year’s estimated payout of 3.47p per share equates to a high 5.6%, which is no doubt attractive in today’s low-interest-rate environment. Second, it has put together a nice string of consecutive dividend increases now, and it looks like there could be more to come. Third, with earnings per share expected to come in at 7.6p this year, dividend coverage is high at 2.2 times, suggesting there’s a solid margin of safety with Lloyds’ payout.

Of course, there are risks to Lloyds’ dividend. As a UK-focused bank, it is heavily exposed to the fortunes of the British economy. A Brexit-related slowdown or a property market crash could hit profits at the bank and put pressure on the dividend. There’s also the threat of further PPI claims. In the second quarter, Lloyds had to set aside an additional £460m for claims.


While Barclays cut its dividend significantly in both 2008 and 2009, it did keep paying a small one during the Global Financial Crisis. However, after building its dividend back up slightly and paying 6.5p per share each year between FY2012 and FY2015, the bank took an axe to its payout again in FY2016, slashing it by half. Barclays’ recent dividend track record and future estimates are below.

FY2014: 6.5p
FY2015: 6.5p
FY2016: 3p
FY2017: 3p
FY2018(estimate): 6.47p
FY2019(estimate): 8.31p

The good news for Barclays investors is that the bank is expected to increase its dividend back to its previous level of 6.5p per share this year. In its half-year results, it declared an interim dividend of 2.5p per share and advised that its intention is to pay a dividend of 6.5p per share for 2018, subject to regulatory approvals.

Assuming Barclays can deliver on its promises, the prospective yield here is 3.5% at the current share price of 185p. Dividend coverage is expected to be around 3.1 times.

Like Lloyds, there are plenty of threats to its dividend, including UK economy weakness and further fines, although Chief Executive Jes Staley did recently state on CNBC: “There’s no more litigation hanging over us, no more costs to achieve and no more restructuring costs.”


Comparing the two banks, Lloyds remains my preferred dividend play. While Barclays’ dividend prospects certainly appear to be improving, Lloyds looks to be a few steps ahead of it.

With a prospective yield of 5.6% on offer, consistent increases in recent years and solid coverage, Lloyds offers considerable income appeal, in my view.

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Edward Sheldon owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.