Lloyds‘ (LSE: LLOY) shares have had a solid run. They’re up more than 22% in the last year, and 88.5% over five. I own the stock, so I’m happy.

In fact, I’m sitting on even bigger gains than that. How come?

The first reason’s luck. I invested £4,000 in 2023, just before the Lloyds’ share price really took off. With a price-to-earnings (P/E) ratio of 6.5, and forward yield of 5.5%, I thought the FTSE 100 bank looked unmissable value.

Timing stock purchases is hit and miss, but I got that one dead right. My Self-Invested Personal Pension (SIPP0 tells me my shares have climbed 120% since I bought them at an average price of 45.3p. Today, they trade at around 100p.

The second reason I’m ahead is down to dividends, which don’t show up in the performance figures. Originally, I bought 9,259 Lloyds shares. I’ve received six dividends so far, and reinvested every single one. Today, I’m the proud owner of 10,240 shares and my total return’s 156%. That original £4k is now worth £10,225. Not a bad return in less than three years.

Why are dividends so powerful?

UK blue-chips boast some of the highest yields in the world. Over the longer run, as much as half the total return from FTSE 100 shares comes from reinvested dividends. Well-run companies aim to increase shareholder payouts every year, turbo-charging the overall compounding effect. Lately, Lloyds has increased its dividend by 15% a year.

On Tuesday (19 May) I received my seventh dividend. That was the second and final payout for the 2025 financial year, worth 2.43p per share. I got just over £248… a passive income that requires me to do pretty much nothing.

Once my SIPP reinvests that I’ll bag another 245 shares, or so. And remember, these are still early days.

With retirement 10 years away, there’s plenty more time my Lloyds shares to compound and grow. I’ll draw those dividends as income when I stop working.

Should you consider this dividend hero today?

So is today a good time to buy Lloyds shares? With a forward P/E ratio of 14.3, they’re pricier than when I bought them. The forward yield for 2026 is lower at 4.3%. But that’s forecast to hit 5.1% in 2027.

Even a solid bank like this one has risks. Remember the financial crisis? Also, Lloyds is very much a UK-focused operation, and our economy’s struggling today. That could hit demand for mortgages and increase loan impairments, hitting profits. After a strong run, the shares could easily slow, or even fall.

I still think Lloyds is well worth considering today as part of a balanced portfolio of FTSE 100 stocks. Investors shouldn’t wait too long for the perfect moment to buy. Timing stock purchases is almost impossible. I got lucky here, but I’ve been unlucky too.

In my view, the sooner investors take advantage of the long-term compounding effect, the better.

Should you invest £5,000 in Lloyds Banking Group Plc right now?

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Harvey Jones owns shares in Lloyds Banking Group