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When it comes to building long-term wealth, dividend shares on the FTSE 100 remain a cornerstone for many investors. These companies promise reliable income streams while offering some exposure to capital growth.
The real trick is looking beyond today’s yield and into what analysts forecast for the years ahead. Projections on dividend growth and earnings per share (EPS) can help investors decide whether a stock’s worth holding — or better left alone.
Two of the UK’s most popular income stocks are Lloyds Banking Group (LSE: LLOY) and housebuilder Taylor Wimpey (LSE: TW.). Both have very different stories right now, but forecasts suggest income-seekers might still find reasons to pay attention.
Lloyds Banking Group
Lloyds is the most owned company in Britain, with an estimated 2.3m people holding the shares. It’s long been a favourite for dividend hunters, typically offering a yield above 5%. However, a rallying share price this year has trimmed that yield to around 4.16%, with the stock currently trading at roughly 93p.
What’s interesting is the outlook. Analysts expect Lloyds’ dividend to rise steadily over the next three years. It’s forecast to reach 3.54p in 2025, then grow to 4.15p in 2026 and 4.76p by 2027. If these numbers hold, the yield could climb close to 6% within the next couple of years.
On the earnings side, things look encouraging too. EPS is forecast to almost double, from 6p today to 11p by 2027. This should give the board more breathing space to reward shareholders.
That said, Lloyds is firmly tied to the health of the UK economy. A domestic downturn could increase loan defaults, pressuring profits. It’s a reminder that while the forecasts look bright, banking shares are always at the mercy of wider economic conditions.
Taylor Wimpey
If its headline yields that grab attention, Taylor Wimpey takes the crown. Right now, it’s the highest-yielding share on the FTSE 100 at a remarkable 9.72%. Investors have noticed too — it was the third most-purchased UK stock in the final week of August.
But it’s not all smooth sailing. The property market remains tough, with high inflation and stubbornly elevated borrowing costs denting housing demand.
The result? A share price that’s dropped 42% over the past year.
Dividends have also been trimmed. Last year’s payout was reduced by 1.25% to 9.46p per share. Analysts expect further slight reductions, forecasting 9.15p in 2025 and 9.1p in 2027. Even so, yields are projected to remain close to 9.5%, which is still well above most FTSE 100 peers.
Earnings are another story, expected to fall to just 3.18p per share in 2025, reflecting the near-term strain on profits. Encouragingly, forecasts suggest a rebound ahead, with EPS potentially recovering to 11p by 2027. That would put the company on a much firmer footing.
Of course, the big risk for Taylor Wimpey remains the domestic property market. If inflation and the cost-of-living crisis persist, profits could remain under pressure longer than analysts expect.
Two attractive options
I think both these dividend shares are worth considering, but their risk profiles couldn’t be more different.
Lloyds offers steadier, incremental growth and might look the safer long-term bet for cautious investors. Meanwhile, for those willing to stomach volatility for extra income, Taylor Wimpey dangles a high yield but with more immediate risks attached.
This story originally appeared on Motley Fool
