The Lloyds share price is soaring. What should I do now?

The long-awaited Lloyds share price recovery might finally be on after years of falls. Will recent gains prove sustainable?

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As a long-suffering Lloyds Banking Group (LSE: LLOY) shareholder, I’ve waited a long time to write a headline like that. But the Lloyds share price is up 30% so far in 2021, and it’s doubled since September 2020. So I think that’s a fair way to describe it. But the price is still only around half what I paid. And over the past five years, Lloyds shares are down 32%.

So what should I do now? Buying in September would have been perfect. But hindsight is always great, isn’t it? I don’t want to tempt fate, but it does look like we’re finally emerging from the Covid-19 crisis. After a year of slump, the UK economy is turning back in the right direction. And the near-universal fear of financial stocks looks like it could finally be ending.

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Lloyds share price future

But first I want to sound a few notes of caution. Headlines proclaiming “UK economy set to climb in 2021” are best treated warily, I think. Like those stock market screamers that go “Fifty billion knocked off the value of UK shares,” they lose all meaning without the wider context. If a man falls off a cliff, survives, and starts climbing back up again, he’s doing relatively well. But he’s not conquering Everest.

I do, however, see longer term reasons to be optimistic about the Lloyds share price. In the early days of the pandemic, the PRA insisted that the banks withhold dividend payments. Maintaining liquidity is a good idea. But I can’t help feeling the mandating of it by the PRA helped to foster a banking-crisis mentality. In general, that kind of intervention in a free market does not please investors. And the Lloyds share price crash was surely worse because of it.

Still, as we now know, the PRA’s fears did not come to pass. Lloyds has announced a dividend of 0.57p, which will be paid on 25 May. That’s not much, but it’s all the PRA’s restrictions will currently allow. I think Lloyds will want to get back to making its own dividend decisions as soon as possible.

Reasons to be cheerful

As fellow Motley Fool writer Cliff D’Arcy has pointed out, there are other bullish factors that could drive the Lloyds share price. Bad debts haven’t been as bad as feared, which could free up some of the cash Lloyds has set aside. There hasn’t been a housing crash, and the banks aren’t facing hordes of mortgage defaulters.

There’s still a risk that the current economic cheer might prove over-enthusiastic. In fact, I think it probably is. We don’t know how the UK will fare post-Covid-19 and post-Brexit. And Covid-19 hasn’t gone away. But I’m optimistic that my Lloyds dividends will be back to respectable levels before much longer. And I hope that will drive the Lloyds share price up further.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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