Stock Market

Here is the Lloyds dividend forecast for 2026

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Lloyds Banking Group (LSE: LLOY) shares have finally had a good year, up 13% year to date in 2024.

But is that good news for equity investors? Well, maybe not. At least not for those of us who want to keep buying more and put in the best dividend yield we can.

The increase in the share price this year has reduced the dividend yield to 5.7%. But I won’t complain, as it’s still a cracking crop. What does the next few years hold?

Bank money

Lloyds has increased this year’s interim dividend by 15% from the same period last year, based on what it described as “earning capacity and CET1 position“.

The CET1, or Common Equity Tier 1, ratio is a primary banking valuation metric. It is a measure of capital that includes things like retained earnings and common stocks. We are talking about assets that are easily converted into cash, and it gives us an idea of ​​how well a bank can handle a downturn.

Lloyds’ CET1 of 14.1% on the road segment was solid, and should easily be enough to satisfy the Bank of England’s stress tests.

For the full year, Lloyds expects it to be up 13.5%. And by 2026 it thinks it will pay it up to about 13%. Everything suggests to me that Lloyds should have no problem meeting its dividend targets.

What the sellers say

The broker’s forecasts show Lloyds shares rising by 5.8% by 2025, a potential yield of 6.0%. And another 17% increase proposed in 2026 would increase it to 7.0% based on the current share price.

If analysts are right, we should see 2024 dividends covered 2.1 times earnings per share (EPS). They expect EPS to dip by 2025, reducing coverage by about 1.9 times. However, a return to strong EPS growth in 2026 could lift it closer to 2.3 times.

Again, this all looks healthy to me. But are there risks that could derail Lloyds’ profit ambitions? They are.

The risk of separation

Interest rates remain high and inflation has risen again, reaching 2.3% in October. Companies are now warning that the latest Budget could raise prices.

A couple with a strong view of economic growth, the uncertainty of the real estate market, growing trade wars, national threats… I am afraid that all may hold the financial sector a fair part of my investment performance that depends on it.

And there is a new problem of mis-selling that is emerging. In this case it is driven by claims related to car finance. Lloyds is big on car loans.

Buy, sell, anything?

We have seen pessimistic predictions that the mis-sold investigation could land Lloyds in a settlement of more than £3bn. And that would send all these forecasters back to the drawing board.

But even with these clouds on the horizon, Lloyds remains one of my long-term potential cash cows.

I probably won’t fill my current holding, though. I might just wait and see how 2025 unfolds.


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