Despite recent cracks in the global banking system, Lloyds (LSE:LLOY) shares have marched higher this year. The Lloyds share price has climbed 4% since the beginning of January and it’s up 8% on a 52-week basis. That makes it the second-best-performing FTSE 100 bank stock in 2023, after HSBC.
I already own a stake in the black horse bank. But if I wanted to target £100 a month in passive income, how many would I need to buy?
Let’s crunch the numbers.
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Dividend investing
Lloyds currently offers a 4.9% dividend yield. That compares favourably to the Footsie average of 3.5%. On the face of it, this might be a compelling reason to invest.
However, it’s important to look beyond the headline figure and acknowledge that no dividends are guaranteed.
To illustrate the point, Lloyds suspended its dividends from 2008 to 2014 in the fallout from the global financial crisis. Payouts were suspended again briefly from 2019 to 2020 due to the pandemic.
That said, current guidance and recent results are positive. A 49% rise in the bank’s net interest income to hit £13.96bn in 2022, coupled with a £2bn share buyback programme, gives me confidence in the near-term dividend outlook.
My calculations below assume no big changes to the dividend picture. However, as worries circulate about contagion arising from the collapse of mid-sized US lenders and Credit Suisse, it’s crucial to bear the risks in mind.
Targeting passive income
So, it’s fair to say a target of £1,200 a year in passive income would require a significant number of Lloyds shares. At today’s share price of just over 49p, I’d need a whopping 49,959 shares in total.
That would cost me £24,489.90 to secure the equivalent of £100 in payouts to spend each month.
Unfortunately, I don’t have that amount of spare cash available and I’m reluctant to rebalance my portfolio too heavily towards Lloyds shares because there are considerable merits to diversified sources of passive income.
Nonetheless, it’s a useful indication of the amount I’d need to invest for four-figure dividend sums every year.
A mixed macro outlook
The broad economic context is arguably challenging for Lloyds. Recent bank failures have created volatility for lenders’ share prices and the UK’s largest mortgage provider isn’t immune to these threats.
However, Lloyds’ pro forma CET1 ratio of 14.1% is above its 12.5% target. That suggests the bank is adequately capitalised to ensure there’s no imminent danger of a collapse.
What’s more, the monetary policy environment could support growth in the Lloyds share price as the year progresses. The bank anticipates its net interest margin in 2023 will be over 305 basis points, up from 294 points the prior year.
Should I buy more shares?
There’s significant uncertainty still engulfing the banking sector. I do think Lloyds shares look sufficiently robust to withstand further shocks. However, I’m wary that black swan events could hit the share price or dividend payouts.
I’ll continue reinvesting my dividends into more Lloyds shares to target a sizeable passive income stream over the long term. Nonetheless, at present, I’m not looking to increase my position significantly as I’m aiming to increase my exposure to other sectors while banking fears remain elevated.
