Shareholders in Lloyds Banking Group are poised for a period of significant returns, with financial analysts predicting the lender will deliver the most attractive cash-back yield for investors across the whole of Europe.
Analysts Forecast a "Sector-Leading" Surge
According to a detailed analysis from Jefferies, Lloyds is expected to ramp up its distributions to investors substantially. Analysts Jonathan Pierce and Priya Rathod have tipped the bank to announce a major strategic shift at its full-year results in February 2026. They predict a move to a half-yearly share buyback programme, a change that would accelerate the pace of capital returned to shareholders.
Alongside this, the bank is anticipated to increase its dividend per share by nearly ten per cent to 3.5p. This comes as analysts forecast a robust return on tangible equity (RoTE) of around 13.5% for 2026, a key measure of profitability.
Resilience Despite Motor Finance Hit
This bullish outlook persists even after Lloyds was forced to set aside an additional £2 billion in October 2025 to cover potential compensation for historical motor finance arrangements. The provision followed proposals from the Financial Conduct Authority's redress scheme.
However, the rising RoTE indicates the bank's underlying strength and its capacity to absorb this financial hit while still pushing ahead with its generous shareholder distribution plans. "Lloyds has been a slow-burn story of long duration," noted Pierce and Rathod, "but in 2026, the thesis gathers pace."
The Path to a 13-14% European-Leading Yield
The Jefferies team's projections extend further into the future, painting an even brighter picture. They believe that by 2028, Lloyds' RoTE will climb to a "sector-leading" 18.5%, with total distributions to shareholders exceeding market consensus by 20%.
"That would leave the shares offering a 13-14% yield, the best in Europe," the analysts concluded. This forecast is underpinned by the bank's financial hedging strategy. As older hedges set at lower interest rates mature and are replaced at current higher rates, Lloyds stands to gain. This mechanism alone is predicted to add over £1 billion to profits in both 2027 and 2028.
In a previous note from August 2025, the same analysts predicted Lloyds would return more than £17 billion to investors by 2027.
The market has already shown positive sentiment. Lloyds shares surged past the 100p mark earlier in the week, contributing to the strong performance of the FTSE 350 bank index, where Lloyds is the top performer. This index has vastly outperformed the FTSE 100, with gains of nearly 50% compared to the wider index's 20%.
