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Lloyds Banking Group (LSE:LLOY) has been increasing the dividend per share payment for the past few years, after cutting it completely during the pandemic. With the dividend yield currently at 4.54%, it’s already higher than the FTSE 100 average of 3.44%. Yet based on the dividend forecasts, there could be more income on the way.
Details of the payments
Typically, Lloyds pays two dividends a year. The first is declared as part of the annual results in February. The second is announced in July with the half-year earnings. Last year, the two payments amounted to 2.9p per share. Using a share price of 63.9p, this gives a yield of 4.54%.
The expectation is for a dividend of 2p next month, with 1.1p in July, totalling 3.1p for this year. For 2026, it’s forecast to be 3.2p, rising to 3.5p in 2027.
Given that the next dividend hasn’t even been declared yet, if an investor bought £2k worth of Lloyds shares now, they would be entitled to receive all the income this year. If I assume the share price by the end of 2027 is 63.9p, then the £2k could make an investor £322.51 in dividends over this period.
This assumes the dividends received are reinvested when paid, which helps to compound future returns.
Points to remember
The big factor to flag here is that dividends aren’t guaranteed. The projections are based on forecasts, in line with how the bank’s expected to perform financially. Yet there are factors that could negatively impact this. For example, if UK interest rates are cut faster than anticipated over the next year, it could reduce profit for the bank. A UK recession could cause customers to cut back on card spending, or increase loan defaults.
Further, the share price might not be the same in 2027. This could work either for or against an investor. If the stock falls in price, the unrealised loss would offset some of the dividends received. However, if the stock increases, then the capital appreciation would make it an even more profitable investment. Ultimately, future share price swings can’t be predicted.
Over the past year, Lloyds shares have increased by 54%. This is partly due to the financial benefits of interest rates remaining higher for longer. Yet even with this jump, the price-to-earnings ratio’s 8.41, below the fair value benchmark of 10 I use when trying to find cheap stocks.
Balancing the uncertainty
Planning for income payments gives investors a good idea of whether the reward for the risk of buying’s worth it. Of course, future dividends aren’t guaranteed, but I feel investors should consider adding Lloyds to an existing portfolio.
