Lloyds shares: here are the dividend forecasts for 2023 and 2024!

Lloyds shares still carry eye-popping dividend yields despite recent share price gains. So should investors buy the bank for passive income?

| 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.

A young woman sitting on a couch looking at a book in a quiet library space.

Image source: Getty Images

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 Lloyds Banking Group (LSE:LLOY) share price has dropped 7% in 2022. This has driven the dividend yield at the bank even further above the FTSE 100 average.

For 2023, the Black Horse bank’s yield sits at 5.9%, well above the 3.7% average for FTSE index shares. And the dial moves to an even-better 6.5% for 2024.

I’m seeking ways to make extra income over the next two years. And at first glance Lloyds shares might be just what I’ve been searching for. But how far can I trust current dividend forecasts?

Dividend growth

Lloyds understands the importance of paying big dividends to its shareholders. So it’s been building shareholder payouts aggressively as it recovered from the depths of the pandemic.

It hiked the total payout to 2p per share in 2021 from 0.57p the previous year. And in July it hiked the interim dividend 20% year on year, to 0.8p.

City analysts are expecting a full-year dividend of 2.4p in 2022.

In spite of the tough economic outlook, brokers are tipping further dividend growth over the short term, too. Dividends of 2.7p and 3p per share are predicted for 2023 and 2024 respectively.

Good protection

It seems as if current dividend estimates look quite realistic, too. Firstly they’re covered 2.7 times by expected earnings. This provides a wide margin of error in case earnings disappoint.

Lloyds could also use its cash-rich balance sheet to help it pay those big anticipated dividends. The bank’s CET1 capital ratio (following dividends and pension contributions) stood at 15% in September. This was well above its target of 12.5% plus a 1% management buffer.

But are Lloyds shares a buy?

Of course there’s no such thing as a guaranteed dividend. The sudden outbreak of Covid-19 — and the colossal impact this had on shareholder payouts across the London Stock Exchange — is evidence of this.

But on paper Lloyds looks in great shape to meet its dividend forecasts for next year. Its focus on the stable retail banking sector will help it to achieve this, too.

Demand for financial products like current accounts and credit cards remains largely robust at all points of the economic cycle. So profits at Lloyds might remain more stable than those of other banking stocks.

Here’s what I’m doing now

However, I’m not convinced that the bank will continue growing strongly beyond next year. Its profits are still closely tied to the performance of the UK economy. And with some economists predicting a prolonged downturn until well into 2024, things could get bumpy.

The rate at which Lloyds is stashing away money for future bad loans is a big red flag to me. It set aside £688m in the three months to September alone, taking the total to well above £1bn.

The dividend outlook remains highly uncertain beyond 2024, too. I think Lloyds might struggle to generate decent earnings as the British economy grapples with an extended Covid-19 hangover and Brexit-related problems.

As a long-term investor, I’d much rather buy other dividend stocks for the New Year.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »