Lloyds (LYG) Could Be a Great Choice

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Headquartered in London, Lloyds (LYG) is a Finance stock that has seen a price change of 3.77% so far this year. Currently paying a dividend of $0.13 per share, the company has a dividend yield of 4.63%. In comparison, the Banks - Foreign industry's yield is 2.75%, while the S&P 500's yield is 1.41%.

Looking at dividend growth, the company's current annualized dividend of $0.25 is up 42.9% from last year. Over the last 5 years, Lloyds has increased its dividend 5 times on a year-over-year basis for an average annual increase of 27.62%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lloyds's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, LYG expects solid earnings growth. The Zacks Consensus Estimate for 2026 is $0.53 per share, which represents a year-over-year growth rate of 47.22%.

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LYG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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This article originally published on Zacks Investment Research (zacks.com).

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Source Zacks-com