In the last five years, Lloyds (LSE: LLOY) has traded as high as 89p, but has never been able to reach 100p. As a result, many investors may be somewhat dubious about an assertion that Lloyds could easily rise to over 100p. That’s especially the case since it’s currently trading at just 72p having fallen by 17% in the last year.
However, Lloyds’ share price has disappointed of late for good reason. The outlook for the UK economy remains bright, but uncertainty remains and there’s a realistic chance that Britain will leave the EU in less than a month’s time. In such a scenario, Lloyds’ share price could come under a degree of pressure since following the takeover of HBOS, it has a considerable presence in the UK property and lending markets. As such, uncertainty for the UK economy could cause investor sentiment towards Lloyds to come under pressure.
Government stake
Furthermore, Lloyds’ share price has been held back by uncertainty regarding the government’s sale of its stake in the bank. This was due to take place earlier this year, but with market volatility being high it was postponed. This may have caused a number of investors to remain somewhat lukewarm towards Lloyds since it remains part-nationalised and therefore appears from the outside at least to still require government aid. But with the government’s stake set to be sold-off in the short term, Lloyds could gain from increased investor demand for its shares.
Of course, Lloyds continues to have an excellent strategy that’s delivering increased profitability. It has made asset disposals, major job cuts and improved its efficiency. This has left a bank that’s more streamlined and in a much better position to record rising profitability over the medium-to-long term.
One advantage of Lloyds’ improved financial position and financial prospects is its dividend potential. It’s forecast to pay dividends per share of 4.4p in the current year, which equates to a yield of 6.1% at its current share price. And with dividends due to rise to 5.1p per share next year, Lloyds could be yielding as much as 7.1% in 2017. This makes Lloyds one of the most appealing stocks in the FTSE 100 for income-seeking investors.
In fact, if Lloyds were to trade at 100p, it would still yield 4.4% in the current year and 5.1% next year. And with dividends due to be covered 1.5 times next year, there’s scope for shareholder payouts to rise at a rapid rate over the medium term. Moreover, with a share price of 100p, Lloyds would still yield much more than the FTSE 100, which currently has a yield of just under 4%. As such, a share price of 100p not only seems possible, but appears to be probable over the medium-to-long term.
