Lloyds Banking Group (LSE: LLOY) has shied back from the 50p level. What might push it back up there to stay? Other than general economic strengthening, and that old investors’ favourite, time, here are three things that I think should help the Lloyds share price.
First is the resumption of dividends. Dividends have kept me bullish on Lloyds during the last few years, but then they shrank. We received 0.57p per share for 2020, which is not the stuff of which happy retirements are made.
It’s all down to the pandemic, and does not represent Lloyds’ long-term dividend prospects. But it does create uncertainty. As a private investor, I can sit back with my confidence that the dividend will resume. But an actual, say, 5% dividend is a very different thing to a possible future 5% dividend, maybe next year, or perhaps the year after.
That can make a huge difference for institutional investors, for whom the current year’s performance is all that matters. No, make that the current quarter. And institutional investors decide where the Lloyds share price goes, not small investors like us.
Free market
That brings me to the wider issue of Covid-19 restrictions in general. And I don’t just mean pubs, football stadiums, and holidays. Sure, anything that gets us closer to a fully functioning economy should help. After all, it does means businesses needing loans, home-buyers needing mortgages, and all that.
But I’m thinking of PRA rules currently holding back what the banks can do. And it’s not just the hard fact of the dividend restriction. No, those who champion free markets don’t like it when regulators stick their oar in and start telling private companies what they can and can’t do with their own money.
I’m not going to champion the financial prudence of the banking sector. No, not after the financial crash. So I won’t knock the PRA for stepping in and saying “Come on folks, let’s have a bit of caution please.” But it is still interference in the market, which some investors do not like. And until we’re properly back to a free market and see the results, I reckon the Lloyds share price will still be held back.
Show me the cash
That brings me to my third thing, Lloyds’ first-half results, due on 29 July. We’ll know by then whether the planned final relaxation of Covid restrictions on 19 July actually happened, for one thing.
Q1 figures looked decent, and Lloyds upgraded its full-year guidance as a result. At the time, the bank said it expects operating costs to drop to around £7.5bn. Lloyds also reckoned its risk-weighted assets should be “broadly stable on 2020,” which reduces uncertainty. The predicted return on tangible equity of 8%-10% looks healthy enough.
Lloyds share price boost?
The key thing for me, as an income investor, was Lloyds’s statement that it is “accruing dividends with intention to resume progressive and sustainable ordinary dividend policy.”
If we get any positive updates on these measures, I could see the Lloyds share price getting a boost.
