In recent years, Lloyds Bank (LSE: LLOY) has rewarded its shareholders with some nice dividends. Last year, for example, the bank paid out 2p per share, which translates to a yield of about 4.8% at the current share price.
Here, I’m going to look at current dividend forecasts for Lloyds for 2022 and 2023. I’ll also explain whether I’d buy Lloyds shares for my portfolio today.
Lloyds’ dividend forecast for 2022 and 2023
After paying out that 2p per share last year, Lloyds is expected to increase its distribution this year and next. According to data from Refinitiv, City analysts currently expect Lloyds to pay out 2.32p for 2022 and 2.59p for 2023. At the current share price, these forecasts equate to yields of 5.5% and 6.2%.
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These figures indicate that Lloyds could potentially be a bit of a cash cow for investors in the years ahead. In the current low-interest-rate environment, in which most savings accounts only pay interest of 1-2%, these higher dividend yields are certainly attractive.
However, it’s important to understand that the figures for 2022 and 2023 are just estimates. And estimates can be way off the mark at times. This has certainly been the case with Lloyds shares in recent years. On several occasions over the last five years, payouts have come in well below analysts’ forecasts. So the actual dividend payments could be lower than this.
Would I buy Lloyds shares today?
As for whether I’d buy Lloyds shares today, I’m not convinced the stock offers a good risk/reward proposition at the moment. Sure, the dividend yield here is attractive. And the valuation looks attractive too. Right now, the price-to-earnings (P/E) ratio is just 6.5, which is very low.
What concerns me though is that the UK could be heading into a recession. According to a recent Bloomberg survey, economists believe there’s a near-50% chance the UK will see a recession in the next 12 months.
In recessions, bank stocks typically underperform because loan defaults rise and profits fall. So there could be share price weakness ahead here. It’s worth noting that the Bank of England recently warned UK banks to brace for an ‘economic storm’, saying the outlook for the UK had deteriorated significantly.
Another major concern for me is disruptive innovation within the UK banking industry in the years ahead. Recently, a lot of new players have come into the market including Revolut, Monzo, Marcus, and Chase. And we can expect to see many more. These kinds of new entrants could potentially capture market share from traditional banks such as Lloyds and impact profitability. To remain competitive, Lloyds is going to have to spend money to innovate.
Better stocks to buy
Given these risks, I’m going to leave Lloyds shares on my watchlist for now. All things considered, I think there are safer dividend stocks to buy in the current environment.
