Shares in Lloyds (UK: LLOY) are already up by a third this year. The Lloyds share price has put on 55% over the past 12 months.
Can it hit 60p this year? Below I explore reasons it could – along with some risks that may hold it back.
Why the Lloyds share price is rising
Why has the Lloyds share price been moving up lately?
Like other UK banks, the lender came out of last year’s financial crash in better shape than many analysts expected. It booked large provisions for possible loan defaults, but recently it has released some of those provisions.
The hot UK property market is another reason the bank’s shares are moving up. With a strong focus on its home market, Lloyds is highly exposed to UK housing. Ongoing strength in property sales bodes well for the bank’s outlook.
Additionally, the bank has restarted dividends.
Possible headwinds for the Lloyds share price
But there are also concerns which could help push the Lloyds share price down again.
One is the economy. So far the economic recovery has been strong and the property market is buoyant. However, no one has a crystal ball when it comes to economic performance. Any housing downturn could lead to default rates rising again.
A lot of investors like myself are hoping Lloyds will raise its dividend as soon as it can. The bank has indicated that it plans to return to a progressive dividend policy. But for now the dividend remains constrained by regulatory requirements.
I think uncertainty about the future dividend and a lower payout level compared to several years ago are acting as brakes on the Lloyds share price.
Can the Lloyds share price hit 60p?
To hit 60p this year, the Lloyds share price would need to rise around 30%. That is a heady increase – but the shares have already risen by that much this year. I think they could do the same again. I see a number of potential drivers to help push the price upwards.
For example, the company’s current share price does not even match its tangible net assets. They were reported in last month’s quarterly results as 52.4p per share.
The company has been accruing dividends and at some point it will likely do something with this money. Even if it does not pay it out to shareholders, the cash pile is an asset that should help bolster the company’s value.
The yield is only 1.2% for now. However, the company has said it plans to resume its dividend programme “at a higher level than 2020”.
Risks
If the bull case above is right, I do think the Lloyds share price could hit 60p this year. But there is no guarantee of that. While a new chief executive settles in, the bank’s performance could take a turn for the worse.
Meanwhile, the shares have already climbed a lot. That suggests that many investors have factored in a lot of the positive investment case. That could mean that it will be harder for the Lloyds share price to keep climbing in the absence of strong positive news flow.
My plan
I continue to hold Lloyds and look forward to receiving its dividend on 25 May. I am considering adding more to my portfolio.
