Buying 50,000 dirt cheap Lloyds shares would give me a £100 monthly income

Lloyds shares look really cheap and offer a high and rising dividend income yield as well. So how many of them should I buy?

| 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.

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet

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.

Last December I decided that Lloyds (LSE: LLOY) shares were so cheap at 46.93p that I simply had to buy them.

I only bought a small stake, because I didn’t have much cash at the time, having splurged on shares after the FTSE 100 dipped below 7,000 in October. Luckily, I didn’t miss out on much. Today, the share price is slightly lower at 46.05p. 

I’ll soon have more cash at my disposal after completing the transfer of a legacy stakeholder pension plan into a self-invested personal pension (Sipp). Should I use it to buy more Lloyds shares?

Should you invest £1,000 in Lloyds Banking Group 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 Lloyds Banking Group made the list?

See the 6 stocks

It’s a top income stock

Lloyds Banking Group is the ideal stock to stick into a SIPP, as I can use its generous dividends to generate income in retirement. Today, it yields 5.2% with plenty of scope for progression as the payout is covered three times by earnings.

The forecast yield is a mighty 6.1%, and that should still be covered 2.7 times. So I should look forward to generating a steadily rising income over time.

As ever, this isn’t guaranteed. In 2018, Lloyds paid a dividend per share of 3.21p. That fell to 1.12p in 2019 and 0.57p during the pandemic in 2020.

It’s on the up now, jumping to 2p in 2021 and 2.4p in 2022. Based on that final figure, I’d need to buy exactly 50,000 Lloyds shares to hit my target income of £100 a month.

At today’s 46.05p, that would cost me a hefty £23,025. Unfortunately, that’s more than I feel comfortable investing. It means trusting a large chunk of my ISA and SIPP portfolio to the fortunes of just one company.

I don’t expect Lloyds to be sunk by the global banking crisis, due to its capital strength and low-risk domestic profile, but it adds to my sense of caution. The UK economy isn’t out of the woods yet, with the Bank of England now expected to hike interest rates as high as 5%.

There are risks and rewards

That could put further pressure on the property market and lead to a rise in debt impairments. On the other hand, it would allow Lloyds to widen its net interest margins, the difference between what it pays savers and charges borrowers.

Higher rates helped Lloyds beat quarterly profit forecasts, with a Q1 pre-tax profit of £2.26bn, up 46%, despite a small rise in arrears. Yet chief financial officer William Chalmers warned margins are likely to fall from 3.22% to 3.05% across 2023.

While the sluggish Lloyds share price is disappointing, it does allow me to buy more stock at a bargain valuation of just 6.3 times earnings.

I’d happily put £5,000 into Lloyds shares at today’s price, once my SIPP transfer is complete. That would give me income of £305 a year based on that 6.1% forecast yield, or just over £25 a month.

That’s just a quarter of my original £100 target but it should rise over time, assuming management keeps lifting its shareholder payouts. Plus I may get some capital growth, if the stock finally rises past 50p and beyond.

As ever with investing, there are no guarantees, but since I plan to hold Lloyds for at least five years, and ideally decades, it has plenty of time to recover.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Harvey Jones has positions in Lloyds Banking Group Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Prediction: 12 months from now, the IAG share price could turn £5,000 into…

Zaven Boyrazian explores how high the IAG share price can fly over the next 12 months and what factors investors…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

Prediction: 12 months from now, the BP share price could turn £5,000 into…

The BP share price crashed in April following the aftermath of US tariffs and tumbling oil prices. But is this…

Read more »

Investing Articles

14.2% dividend yield! Is this FTSE income stock worth considering in 2025?

This clean energy trust offers the highest dividend yield in the FTSE 350 right now, but is the double-digit payout…

Read more »

Investing Articles

£5,000 invested in the S&P 500 at the start of 2025 is now worth…

2025 has been a bumpy ride for the S&P 500, tumbling towards a correction before falling further on tariff news…

Read more »

Investing Articles

£10,000 invested in the FTSE 250 10 years ago is now worth…

The FTSE 250 has been an underperformer over the last decade, but some of its stocks have delivered explosive returns…

Read more »

Investing Articles

£10,000 invested in the FTSE 100 10 years ago is now worth…

Even after multiple crashes and corrections, the FTSE 100 has still delivered impressive returns for long-term investors since 2015.

Read more »

Investing Articles

How much would a Stocks & Shares ISA investor need to invest each month to retire comfortably?

Here's how much a Stocks and Shares ISA holder may need to spend each month on UK and US shares…

Read more »

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

10.1% and 12.9% dividend yields! 2 ETFs to consider for a second income

Looking for ways to target a dependable second income in uncertain times? These ETFs could be just the ticket, says…

Read more »