Historically, Lloyds Banking Group (LSE:LLOY) shares have earned a reputation for being one of the best dividend payers around. But in late 2024, things started to change.

Instead of being one of the highest-yielding stocks on the FTSE 100 it began to move closer to the average. Not because of a cut to its payout but due to a soaring share price. Where does this leave us now? Let’s discuss.

What’s the City saying?

Based on the consensus of analysts’ forecasts, Lloyds is going to pay the following dividends over the next five years:

• 2026: 4.32p
• 2027: 5.10p
• 2028: 6.07p
• 2029: 6.80p
• 2030: 7.84p

Admittedly, they’re only opinions but — if accurate — it means by the start of the next decade, the bank will have increased its payout by 115% compared to 2025. The forecasts above give a range of forward yields of 3.95%-7.17%.

So if I bought 9,149 Lloyds’ shares today (13 September) costing £9,999.86, how much income might I receive over the next 12 months?

Well, I’ve missed this year’s interim payment of 1.58p as the stock went ex-dividend on 6 August. However, excluding this, my investment could produce dividends of 28.55p per share through until September 2030. That’s an overall return of £2,612.04 (26.1%) from the 9,149 shares.

That’s a decent payback from doing nothing.

Possible challenges

Of course, as dividends are a distribution of earnings, they can never be guaranteed. Also, Lloyds has to be careful to ensure it retains sufficient reserves to satisfy the Bank of England’s regulatory requirements.

Other threats to the bank’s payout include a UK economic slowdown – nearly all of its revenue’s generated here – which, more than likely, would result in higher loan defaults and a general downturn in new business.

In addition, a windfall tax on banks’ profits could lead to a loss of confidence in the sector. Although this is only a rumour at the moment, the government appears to be increasingly boxed into a corner when it comes to finding new tax-raising opportunities.

In a drive to end rip-off Britain, the Green Party has called for a 38% windfall tax on domestic profits above £800m for the UK’s biggest banks, to raise at least £19 billion for small businesses.

Green Party, August 2026

My view

Lloyds used to yield far more but its recent share price rally – its stock’s increased by 156% since September 2021 – means it’s moved closer to the FTSE 100 average.

In fact, there are currently 27 stocks on the index returning 3.95% or more on a trailing 12-months basis. On the FTSE 250, there are 69 offering a better return.

To be fair, the bank’s been generously increasing its dividend since the pandemic but the near-tripling of its share price means the yield’s fallen. This doesn’t matter to longstanding shareholders who bought the stock when it was much cheaper as their effective yields are much higher.

But for those that don’t currently have the stock in their portfolios (like me), it’s an important consideration. This makes me conclude that, although Lloyds has much going for it — I believe it’s a well-managed company bank with a strong brand — I think there are plenty of better income opportunities to consider elsewhere…

What income stock do we like better than Lloyds Banking Group Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

James Beard does not hold positions in any of the companies mentioned.