Despite cash returns being cut during the Covid-19 pandemic, Lloyds shares remain incredibly popular with those UK investors looking to generate passive income from their portfolios.

So how much might I receive from investing, say, my full Stocks and Shares ISA allowance — £20,000 — in the company?

Let’s find out.

Chunky dividends

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

Out of interest, both are far more than I’d get from holding a FTSE 100 tracker. That’s something I always look for when considering whether buying stock in a single company is worth the extra risk involved. Based just on these numbers, that’s a nice tick in the box to kick things off.

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

That’s a chunky sum. And if I can reinvest that sort of money over many years, the miracle that is compounding might leave me with a very nice pot to enjoy in retirement.

Would I actually get the cash?

As most income investors quickly learn, dividends are never guaranteed. And while we can’t predict the future with any certainty, it makes sense to look at how trading’s going before clicking the Buy button.

It’s fair to say that last week’s Q3 update (23 October) didn’t exactly set hearts aflutter. Pre-tax profit for the first nine months of the year came in at £3.93bn, due in part to higher operating expenses. That’s 27% below the figure hit over the same period in 2023.

But it’s worth noting that the share price has barely moved since. So the market seemed pretty satisfied (or at least not shocked) by these numbers.

Separately, the consensus among analysts is that Lloyds’ FY25 dividends will still be covered over twice by expected profit. That’s the kind of buffer I look for.

Hold your horses!

The idea of throwing my entire annual allowance at a single business is fun as a thought exercise. But it’s very unlikely I’d do this in real life.

The trouble is, no one truly knows what is around the corner. And this is particularly the case when it comes to anything remotely connected to the cyclical financial sector.

Put another way, Lloyds could execute brilliantly from here but still be dragged down by more general economic developments. For example, the gradual cutting of interest rates may be good news for borrowers.

However, it will put pressure on the bank’s net interest margin. And with next week’s budget firmly in focus, who knows whether the shares will be able to hang on to the near-30% gain seen in 2024 so far. After all, the bank’s heavily dependent on income from these shores.

Too tough for me

With a blindfold on and only a few numbers to go by, I might ponder buying this stock as part of a diversified portfolio.

Blindfold off, it’s a different story. Taking into account the complexity of Lloyds as a business and the still-rather-fragile UK economy, I’d rather prioritise shares where earnings are more predictable.

If this means receiving a smaller amount of passive income as a result, so be it!