Here's £20,000 worth of Lloyds shares that could get me into passive income

Despite reduced returns during the Covid-19 crisis, Lloyds shares remain popular with UK investors looking to generate income for their portfolios.

So how much can I get by investing, say, my full Shares and Dividends ISA – £20,000 – in a company?

Let's find out.

Chunky assignments

At current prices, the banking giant has a dividend yield of 5.3% in FY24, rising to 5.5% in FY25.

Out of interest, both are a lot more than I can get by holding a FTSE 100 a clue. That's something I always look for when considering whether buying stock in one company is worth the extra risk involved. Based on these numbers, that's a good tick in the box to boot.

Using the final percentage, investing £20k will generate £1,100 in that financial year!

That's a small amount. And if I can reinvest that kind of money over many years, the compounding miracle could leave me with a very nice pot to enjoy in retirement.

Can I really get the money?

As many income investors quickly learn, returns are not guaranteed. And while we can't predict the future with any certainty, it makes sense to check how the trade is going before clicking the Buy button.

It's fair to say that last week's (October 23) Q3 update did not set hearts well. Pre-tax profit for the first nine months of the year came in at £3.93bn, due to higher operating costs. That's 27% below the figure for the same period in 2023.

However, it is important to note that the share price has not moved since then. So the market seems satisfied (or at least not shocked) by these numbers.

Separately, the consensus among analysts is that Lloyds FY25 shares will still be covered by double the expected profit. That's the kind of buffer I want.

Hold your horses!

The idea of ​​throwing all of my annual income into one business is fun as an exercise in thought. But I'm unlikely to do this in real life.

The problem is, no one really knows what's around the corner. And this is especially so when it comes to anything remotely connected to the revolving financial sector.

Put another way, Lloyds could do very well from here but be dragged down by general economic developments. For example, a gradual reduction in interest rates may be good news for borrowers.

However, it will put pressure on bank interest rates. And with next week's budget firmly in focus, who knows if stocks will be able to hold on to the nearly 30% gains seen in 2024 so far. After all, the bank relies heavily on the funds available in these areas.

It is very difficult for me

With eyes closed and only a few numbers to go by, I might consider buying this stock as part of a diversified portfolio.

Close your eyes, it's a different story. Considering the complexity of Lloyds as a business and the UK economy still looking fragile, I would prefer stocks where earnings are predictable.

If this means getting a small amount of income as a result, so be it!