Banking generally is a very worthwhile line to be in. Take Lloyds (LSE: LLOY) for instance. Final yr, the black horse financial institution reported post-tax income of £5.5bn. It delivered a second consecutive yr of double-digit share progress. The Lloyds dividend yield is 5%.

That’s above the typical of the financial institution’s FTSE 100 friends, though under another well-known shares. Natwest yields 5.5%, for instance, whereas HSBC is on 7.1%. In actual fact, HSBC has risen 143% since September 2020, so if I had had the foresight to purchase its shares then, I might now be incomes a dividend yield of round 17% on my funding!

I already personal Natwest shares. Might the Lloyds dividend outlook persuade me so as to add the shares to my ISA?

Uneven dividend historical past

As dividends are by no means assured, understanding what has occurred prior to now will not be essentially a helpful information to what could occur in future.

In 2020, for instance, the Lloyds dividend was all of the sudden frozen, together with these of different British banks as a consequence of a regulatory requirement.

Nonetheless, the long-term historical past of the Lloyds dividend unsettles me.

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The chart reveals a few issues that concern me.

One is the massive drop within the Lloyds dividend after the final monetary disaster. It has by no means bought again to something prefer it was once (and neither has the share price, come to that).

Moreover, the dividend has not even reached its pre-pandemic stage once more.

That’s regardless of the corporate’s mammoth income and free money flows massive sufficient to launch a £2bn share buyback programme this yr.

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Sturdy belongings, unsure market

That makes me suppose that present administration merely doesn’t see the dividend as a really excessive precedence. Certainly, that was one motive I offered my Lloyds shares final yr. Sure, the dividend has elevated sharply, but it surely has not bought again to the place it was in 2019 regardless of the financial institution being flush with money.

Wanting again to the monetary disaster, my concern is that banking is a cyclical enterprise. For now, Lloyds is doing effectively. It has a widely known model, big buyer base, and the nation’s largest mortgage ebook. These are strengths when the property market is robust. If it tumbles, although, a big mortgage ebook might be a supply of huge losses, not income.

British banks typically look in higher monetary form now than they did going into the final monetary disaster, due partially to extra stringent liquidity necessities. Nonetheless, the danger of one other property crash weighs on my thoughts as an investor.

I really feel higher rewarded for that threat proudly owning financial institution shares with a better yield than the dividend Lloyds gives me at its present share price.

That’s the reason I plumped to dip my toe again into the banking waters by shopping for Natwest shares as an alternative. I’ve no plans to purchase Lloyds shares.