The Lloyds Banking Group (LSE:LLOY) share price currently trades just under 50p. So is that good? Depending on the historical timeframe you look at, different opinions can be formed. For example, over one year this represents a gain of 44%. Yet over two years, the share price is actually down 15%. Clearly, there’s a mixed story here, and I think this carries forward into the outlook for the rest of the year.
Looking back before looking forward
From 2015 to 2019, the Lloyds share price traded in a rough range between 50 and 85p. The bank wasn’t setting the world on fire with its offering to customers, but at the same time it was performing OK.
This all changed during the stock market crash in March of last year. The share price plunged through the key 50p barrier, and closed at 27.7p in the first week of April. No one could have predicted the extent of the negative impact that the pandemic would have on the economy.
But with the share price currently around 50p, clearly the impact of the pandemic wasn’t fatal for the bank. This was for a few reasons. Firstly, the stock market tries to be a forward-looking barometer. The Lloyds share price fell heavily in that month as investors tried to predict the worst-case scenario. This would mean large losses due to loan and mortgage defaults, both for individuals and companies.
It’s true that Lloyds did have to set aside large amounts for the potential losses. In Q2 2020, it set aside £2.4bn in impairment charges just for that quarter. Yet in reality, the impact was less severe, meaning charges could be reduced by the time of the annual report.
Another reason why the shares have bounced back from the lows is that Lloyds is heavily exposed to the UK economy. But the outlook for the economy is much better now than it was a year ago. Positive sentiment has therefore lifted the shares.
My outlook for the Lloyds share price
So would I buy it today? I’d put my outlook as cautiously optimistic right now. I think the Lloyds share price will continue to have a strong correlation to the UK economy. Retail sales data for April showed monthly growth of 9.2%. If it continues to move higher, this could be good news for Lloyds.
I’m cautious regarding the economy as some parts of it might still be fragile. For example, house prices are soaring, but banks only lent £3.3bn to homebuyers in April, down from £11.5bn in March. Any disruption in this market would impact the economy. It would also be damaging for Lloyds, which is a large lender in this space.
The Lloyds share price should be boosted from the resumption of dividend payments. Income investors could start to buy the shares again for the income that comes with them. If the yield moves higher by the end of the year, this should help the Lloyds share price move above 50p.
The risk here is that if the dividend remains low (the payment last month was 0.57p per share), it might struggle to attract any large inflows from income-hungry investors.
Overall, I think the Lloyds share price can move higher in the second half of the year, so would be happy to buy it at 50p.
