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I don’t currently own any Lloyds (LSE:LLOY) shares in my SIPP or Stocks and Shares ISA. However, I recently dumped Legal & General, so I’m scouting around for a potential replacement.
Obviously I’m late to the party, with Lloyds stock up 130% in the past three years, with dividends chipping in too. Yet I note that it’s dipped almost 13% since August.
So, if I invest three grand in the Black Horse bank, how much could I expect to receive next year?
Passive income potential
If I buy at today’s price of 102p, I would get 2,941 shares, excluding stamp duty and dealing charges. I calculate that I would receive an £89 dividend in May, followed by roughly £51 in September 2027. So that’s around £140 for the calendar year.
For FY27, City analysts expect the FTSE 100 bank to pay a total dividend of 5.39p per share, including the final dividend for that year in May 2028. That gives us a forward-looking yield of 5.66%.
I do find that attractive, especially as the payout is projected to be covered just over two times by forecast earnings. You can never say never in the stock market, but I’d be shocked if the income didn’t come through.
The Chancellor will see you now…
Of course, income is just one part of the picture. There’s also whether I think the share price will go up, and what might drive it higher (or lower).
On this front, I do see a few potential challenges on the horizon. The most pressing is that UK government borrowing costs have soared in recent weeks, giving the new chancellor a headache ahead of the budget at the end of this month.
With less money to fund defence and other things, will banks be forced to cough up? Sky News has reported that the chief executives of major lenders have been asked to attend a meeting with the Chancellor next week. Cue ominous music…
Needless to say, a banking sector tax raid wouldn’t be ideal for investor sentiment. However, it might not necessarily hit the dividend, as I would imagine Lloyds would pause or cancel share buybacks first.
Musing out loud
Another future risk is Meta‘s personal AI agent Muse. Many consumers leave surplus balances sitting in low-yielding bank accounts out of laziness. However, agents like Muse can continuously monitor savings rates and money market yields, and potentially sweep idle cash into the highest-yielding vehicle every month without human intervention.
Personally, I’m not too concerned about this as we don’t know whether consumers will widely adopt Muse (I don’t see everyone wearing AI smart glasses and VR headsets yet).
That said, if AI agents start moving people’s money for them, banks might have to really compete on price or lose deposits.
Will I buy the shares?
Looking ahead, I do think there’s a real risk that banks get walloped in this month’s Budget. The oil and gas, gambling, and private education sectors have already been raided. All businesses ended up paying more after the 2024 budget. So lenders appear to be next, by the sounds of it.
Given this uncertainty, I’m going to hold off investing in FTSE 100 banks. I might get a better opportunity if I’m patient.
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Ben McPoland has no position in any of the companies mentioned.
This story originally appeared on Motley Fool
