The Lloyds share price yields 5.1%! I think that’s too good to ignore

As the yield on the Lloyds share price jumps, Rupert Hagreaves explains why he would use this opportunity to snap up the stock.

| 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.

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.

The yield on the Lloyds (LSE: LLOY) share price has jumped to 5.1%. There are two reasons why the yield has risen to this level.

First of all, shares in the lender have been under pressure recently as investors have been moving away from risk assets as geopolitical tensions have flared up. 

The yield on the company’s shares has also increased after it announced that it would be hiking its distribution to investors for the year following its full-year earnings release. 

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

See the 6 stocks

Lloyds share price dividend growth 

Two weeks ago, the company reported a pre-tax profit of £6.9bn for its 2021 financial year. Off the back of this result, the lender announced that it would repurchase £2bn of shares and hike its final dividend to 1.33p.

To put this figure into perspective, for its 2020 financial year as a whole, Lloyds paid total dividends of just 0.6p. 

City analysts expect the bank to increase its payout further in the years ahead. Analysts have pencilled in a dividend of 2.5p per share for the 2022 financial year, and 2.7 p per share for 2023.

Based on these projections, shares in the bank could yield 5.6% next year. Of course, these numbers are subject to change. In the past, the bank has issued special dividends to supplement regular payouts.

Unfortunately, at the beginning of 2020, it was also forced to eliminate its dividend. This is a major risk investors have to deal with when buying income stocks. The payout is never guaranteed. 

Still, I think the Lloyds share price looks too good to pass up with this dividend on offer. Not only is the lender benefiting from rising profitability, but it also has a relatively strong balance sheet.

This is the reason why management has been able to return additional cash to investors by repurchasing shares. The company has enough cash to chase other growth initiatives and return even more money to investors.

Risks ahead

That said, with pressures such as the cost of living crisis, rising interest rates and the supply chain crisis all weighing on UK economic activity, the lender’s growth could fail to live up to expectations in the months and years ahead. I will be keeping an eye on these challenges as we advance. 

Despite these potential risks, I think the Lloyds share price has enormous potential as an income investment. As the economy returns to growth after the pandemic, I think the bank can capitalise on this recovery.

It is also set to benefit from other growth initiatives, such as its push into wealth management and buy-to-let property. These initiatives are unlikely to provide the sort of profits the core business generates. Still, they may offer some much-needed diversification in an increasingly uncertain environment. 

As such, considering the lender’s growth potential and its current dividend yield, I would buy the stock for my portfolio today. 

Should you buy HSBC shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

2 shares to consider as a new US deal could revive the UK stock market

Our writer investigates two major FTSE 100 shares that could enjoy a boost following a US tariff shift and possible…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

This FTSE 250 growth trust just loaded up on these 2 top S&P 500 stocks

Our writer noticed that this FTSE 250 investment trust has just scooped up a couple of quality US growth stocks.…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

This world-class FTSE 100 company’s expecting up to 10% growth in 2025

This is one of the most profitable companies in the FTSE 100 index. And right now, it’s firing on all…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10k invested in Phoenix shares 10 years ago would have generated passive income of…  

Shares in this FTSE 100 insurance giant have done poorly over the last decade. Harvey Jones wonders if super-sized passive…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

This brilliant FTSE income share just paid me £458 for doing absolutely nothing – I love it!

Harvey Jones is sending some love to high-yielding FTSE 100 dividend income share M&G today in return for it sending…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Should I buy Palantir (PLTR) stock for my ISA in 2025?

Palantir stock's flying in 2025, having risen almost 60% already. Should Edward Sheldon take the plunge and buy the growth…

Read more »

Workers at Whiting refinery, US
Investing Articles

Drowning in debt amid falling oil prices, can the BP share price recover?

By far the worst-performing of the oil majors, Andrew Mackie assesses just what it will take to kick life back…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

As Cash ISA changes approach, is now the time to buy UK shares for long-term wealth?

Changes to the Individual Savings Account (ISA) could present an unexpected opportunity to try to get richer with UK shares.

Read more »