If I invest £5k in Lloyds and Tesco shares, how much passive income will I receive?

Investing in dividend shares is one of the easiest ways to generate passive income. Here’s how much an investment in Lloyds and Tesco could deliver.

| 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.

Group of young friends toasting each other with beers in a pub

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.

Lloyds (LSE: LLOY) and Tesco (LSE: TSCO) are two of the UK’s most popular dividend shares. It’s easy to see why – both companies are very well known and currently sport attractive dividend yields. How much passive income could these shares generate for investors? Let’s take a look.

Substantial passive income

Let’s say I was to invest £2,500 in each of these shares today, for a total investment of £5,000.

At their current share prices (46.9p for Lloyds and 268p for Tesco) I’d get 5,330 Lloyds shares and 932 Tesco shares (note that these calculations ignore trading commissions).

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

See the 6 stocks

Now, City analysts currently expect Lloyds to pay out 2.78p per share in dividends for 2023. Meanwhile, they expect Tesco to pay out 10.9p for the financial year ending 25 February 2024.

This means that I could be in line to receive dividends of around £148 from the banking giant and £102 from the UK’s biggest supermarket for their current financial years. So, my annual income from the two stocks, in the near term, would amount to around £250.

Timing of the payouts

When would I receive this passive income?

Well, Lloyds pays its first dividend for the year in September. It then pays its second in May of the following year.

Meanwhile, Tesco pays its first dividend in November and second in June of the next calendar year.

This means that I would receive my £250 in dividends between September 2023 and June 2024.

Dividends are never guaranteed

Now, it’s worth stressing that the dividend figures I’ve used above are just forecasts. And analysts’ forecasts can be off the mark at times. So there’s no guarantee that I’d receive income of £250 from these two stocks. It could be less than this. Companies can cut, suspend, or cancel their dividends at any time.

And inaccurate forecasts aren’t the only risk to consider here. Another is share price volatility. A fall in the share prices of these companies could offset my gains from income.

I wouldn’t expect to see a high level of volatility from Tesco shares (although we can’t rule this out). This is quite a ‘defensive’ company and its shares tend to be far less volatile than the UK market as a whole.

Lloyds shares are a different story though. This is a ‘cyclical’ company that’s exposed to the ups and downs of the UK economy (which isn’t doing so well right now). And its shares tend to be far more volatile than the broader market.

I’d buy other UK shares for diversification

I like them but given these risks, I wouldn’t want to only own these two shares. I’d want to own plenty of others too – in areas of the market such as healthcare, consumer goods, and technology – to give myself the best chance of investment success.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc and Tesco 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

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »

Investing Articles

Up 17% in 2 days! At last, some good news for those interested in the JD Sports share price

The JD Sports share price jumped after the company said trading was in line with expectations. Our writer considers what…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Is this FTSE 250 retailer a falling knife or a bargain buy?

Our writer Ken Hall has an under-pressure FTSE 250 retailer on his radar. Is it a bargain hiding in plain…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Building a second income stream in 2025 is now more important than ever

With the backdrop of today's economic landscape, Mark Hartley investigates the importance of a second income and how to build…

Read more »

Google office headquarters
Investing Articles

Down 29% and 26%, these ‘Magnificent 7’ growth stocks are still on sale!

Both of these mega-cap growth stocks are more than 25% off their highs right now. And Edward Sheldon believes they…

Read more »