With the recent stock market turmoil, a growing number of investors are wondering what’s happening with the Lloyds Banking Group Plc (LSE:LLOY) dividend forecast.
Historically, this banking stock has been a safe haven for many income investors in the United Kingdom. But can its payouts continue to provide a reliable passive income during a recession? Let’s see what analysts are currently predicting.
How are the financials looking in 2023 so far?
At the start of the year, Lloyds Bank announced an ambitious strategy for transforming its business. The goal is to generate a stronger long-term growth trajectory, opening the floodgates to higher, more sustainable returns.
That’s terrific news for income investors if the company can pull it off. And looking at the latest results, it seems the group is on track given the strong financial performance over the last six months. So much so that management actually raised guidance for the full year.
Net income for the first half of 2023 landed at £9.2bn, up 11% on a year-on-year basis. Meanwhile, there was a strong return on tangible equity of 16.6% in the first half of 2023 and 13.6% in the second quarter.
What is the Lloyds dividend forecast for 2023 & 2024?
Lloyds’ interim ordinary dividend was announced in H1 2023 at 0.92p per share. This is in line with its progressive and sustainable ordinary dividend policy. That’s a 15% jump versus a year ago, and the bump has many investors optimistic about the final dividend payment expected throughout the rest of the current financial year.
With higher interest rates creating a more favourable lending environment for banks, the group’s earnings have been trending upward, paving the way for a more substantial shareholder payout.
Assuming management can continue to execute its long-term strategy successfully, patient income investors could be well-rewarded in the coming years. At least, that’s the impression that analyst forecasts would suggest.
| Lloyds Dividend | 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|
| Dividend Forecast | 3.0p | 3.5p | 0p | 1.75p | 2.43p |
| Actual Dividend | 3.21p | 1.12p | 0.57p | 2.00p | 2.40p |
| Beat Expectations? | ✓ | ⨉ | ✓ | ⨉ | ⨉ |
| Lloyds Dividend Forecast | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 |
|---|---|---|---|---|---|---|
| Dividend Forecast | 2.74p | 3.24p | 3.81p | 3.79p | 4.19p | 4.61p |
Supposing that Lloyds Banking Group Plc delivers on its dividend forecast for 2023, the UK bank currently offers an attractive forward yield of 6.56% based on the current share price. When looking at the 2024 forecast, this jumps closer to 7.75%, and for the 2025 dividend forecast of 3.81p, the yield shoots to an impressive 9.11%.
Given the long time horizon, the 2026, 2027, and 2028 Lloyds dividend forecasts of 3.79p, 4.19p, and 4.61p, respectively, are subject to higher uncertainty. But assuming management hits earnings milestones in line with analyst expectations, the five-year forward yield of Lloyds shares stands at 11.03%!
Needless to say, that’s pretty chunky compared to the FTSE 100‘s historical average yield of 3.7%.
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Should I buy Lloyds shares for the income?
If I only focus on the dividend yield, the Lloyds share price looks like an attractive investment for my portfolio. After all, not many businesses can offer a sustainable 6% dividend yield.
Sadly, investing successfully isn’t that simple. And in my experience, a more holistic approach is needed to weigh the risks and rewards when picking individual stocks.
Rising interest rates to tackle inflation do make for an ideal lending environment. But a recession does not. And the UK economy is currently in a bit of a pickle.
The Bank of England recently issued a warning for an “economic storm“, which is not to be taken lightly. During such a situation, banks are the first to receive the blow with increased loan defaults and a decline in profits. Needless to say, this could result in dividends taking a sharp blow as cash flow and earnings become adversely affected.
Final thoughts on the Lloyds dividend forecast
Some investors would still consider looking at the Lloyds dividend forecast for 2023 to further support their decision. But in my opinion, when the economy is giving clear signs of a potential recession, it’s critical to take a step back.
Forecasts, by their very nature, are educated guesses and by no means guaranteed. That’s why, personally, I think it may be best to keep this stock on my watchlist for now until a clearer picture forms of what lies in store for the British economy.
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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.
