The Lloyds share price: what do the latest results mean?

As a Lloyds Banking Group (LSE: LLOY) shareholder, dividends are all I’ve had to compensate me for a falling share price. Until last year, that is, when the banks suspended their dividends in the face of the Covid-19 pandemic. That certainly didn’t help the Lloyds share price, and it had crashed hard by the autumn.

But this week’s results brought the news that I, and many others, had been hoping for. Lloyds has reinstated its dividend. None of the UK’s big banks actually came close to any liquidity crisis. And, speaking of its “strong capital position“, Lloyds revealed a 2020 dividend of 0.57p per share.

With a yield of just 1.5% on the current Lloyds share price, that might seem miserly. But the bank explained that it is “the maximum allowed under the regulator’s guidelines“. In the short term, some might be disappointed that regulators are restricting the free market. But for the long term, it doesn’t really bother me too much. It would have been nice to know how much Lloyds would have paid had it enjoyed full freedom. But I do think the bank’s fundamentals will come through in the end, though there’s a big question over how long it might take.

Liquidity is key

What’s Lloyds’ liquidity like now? We’re looking at a CET1 ratio of 16.4% before dividends, and 16.2% after. Compared to the bank’s target of 12.5%, things look healthy on that score at least. What would I do now if I did not hold Lloyds shares? Coming to Lloyds afresh today, judging it as a potential new investment, I’m really not sure. I’m looking at a very different company to when I originally invested.

When I bought, profits were strengthening and analysts predicted steady growth. And the Lloyds share price was on a modest price-to-earnings ratio. Today, I have far less idea what Lloyds’ long-term profit outlook will be like. Forecasts are not dependable at the best of times. But right now, with the long-term economic damage caused by the pandemic (oh, and by Brexit) far from known, I place little value on forecasts.

Lloyds share price valuation

In turn, valuations based on popular fundamentals don’t mean a lot to me now. When those fundamentals are so uncertain, any valuation calculations I can come up with are close to meaningless. So whatever Lloyds’ forecast P/E for 2021 might be (and I haven’t even worked it out), it would tell me pretty much nothing. So I can’t decide whether the Lloyds share price is a bargain.

And then, my main reason for buying was the dividend. That had come back and I was looking forward to a long run of steady annual increases. Today, I’m still happy with Lloyds key liquidity ratios and I expect a better dividend to come. But I can’t even guess when. Current PRA guidance, which pegs back how much Lloyds should pay today, takes its risk-weighted assets into account. And the risk of assets turning bad over the course of the next year is a big unknown.

I certainly don’t intend to sell at the current Lloyds share price. But I was waiting for these results to help me decide whether to buy more. I’m going to hold off.