Three years ago today, anyone buying Lloyds‘ (LSE: LLOY) shares would have been staring at a 3.75% dividend yield. Not much to sniff at, you might think. After all, the Bank of England (BoE) interest rate went above 5% at one point, which meant putting the cash into a safe-as-houses Cash ISA would have been by far the better investment. Or would it?

Actually, the basic dividend yield is only one part of the puzzle here. And Lloyds’ shares have been a terrific investment for the last three years in both dividends and share price moves. And an investor prescient enough to reinvest dividends into the stock might now be looking at a yield creeping above the 8% mark. Let me explain.

The numbers

The following table contains the details of what would have happened to a £1,000 stake continually reinvested over the period. The calculations are based on historical data, but the exact times of reinvesting the shares might change the numbers a touch.

So what’s going on here? How did the dividend yield jump from less than 4% to above 8%? The ultimate reason is that it’s been a very successful few years for the company. Factors including higher interest rates worked in the bank’s favour and earnings have been growing. The share price more than doubled too.

Another point is the difference between dividend yield and forward dividend yield. The basic dividend yield tells us what was received in the last 12 months as a percentage. But for budding investors, the forward yield, which gives the next 12 months, is more useful. That’s why the first year was over 6%.

All told, an investor plumping for Lloyds’ shares three years ago would have nearly tripled their stake. But could it happen again?

Are Lloyds’ shares a buy?

There’s cause to believe the events of 2026 have dealt Lloyds a bad hand. The terrible conflict in Iran isn’t having just humanitarian consequences, but it will have worldwide ripples effecting inflation and the global economy. This could be a hammer blow to the banking sector. Lloyds’ share price is down 11% since February and was down 19% at the lowest point.

There might be one silver lining in this cloud, however. One of the reasons for Lloyds’ recent success has been higher interest rates, which allow more flexibility to increase margins. That the BoE was unable to bring the rate down to the 2% target (because of persistent inflation) has been a boon to banks. Therefore, the talk of interest rate rises due to the war may help while it hinders.

Only time will tell us for sure whether Lloyds can continue its excellent run. One thing is eternally true however. The dividend yield doesn’t always tell us the earnings potential for investing in a stock. And I wouldn’t be surprised to see a similar run in the future. I think it’s worth considering.

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John Fieldsend owns shares in Lloyds.