The Lloyds (LSE: LLOY) share price has come a long way from its sub-24p low last September and it’s up over 50% in the past year. Nevertheless, at just under 47p, as I’m writing, it’s still well down on its pre-pandemic level.
After the strong performance of the last nine months, what are the prospects for July and beyond?
In early March, Lloyds’ shares got back above 40p for the first time in a year. Through much of March and April they traded in a range between 40p and 45p. And through May and June the range moved up to between 45p and 50p.
Will this steady progress continue in July and August? Can we perhaps expect to see the shares trading between 50p and 55p?
Clearly, for the Lloyds share price to maintain its momentum, we’ll have to see investor sentiment for the Black Horse continue to grow. A combination of things has driven positive sentiment so far in 2021. Principally, rising optimism about the UK economy and Lloyds’ business performance. The latter included encouraging annual results in February (including the resumption of the dividend), and a positive Q1 trading update in April (including management upping its full-year guidance).
With ‘freedom day’ slated for 19 July and Lloyds’ half-year results for 29 July, there’s potential for sentiment to continue improving, and the share price to break above 50p. A delay to the ending of all restrictions, and/or below par results from Lloyds, could upset the apple cart in the near term. However, I’m optimistic on both counts.
Before the pandemic, Lloyds had rebuilt its reputation as a ‘safe’, well-capitalised bank, paying generous and reliable dividends. The company announced a 0.57p payout with its 2020 results — the maximum the regulator would allow. Good news on the interim dividend in the upcoming half-year results could further improve investor sentiment.
The consensus among City analysts is that the board will declare a 0.56p dividend. Meanwhile, the forecast total for the full year is 1.8p. At the 47.5p share price, the prospective yield is therefore 3.8%. What’s more, many analysts are expecting a special dividend at the end of the year too.
Further out, the consensus is for strong increases in the ordinary dividend in 2022 (4.5% yield) and 2023 (5.1% yield). And there could be more special dividends to boot. As such, the picture should become increasingly attractive for income investors.
What about Lloyds’ share price?
I don’t think Lloyds is all about dividends though. I can see scope for decent capital gains as well. In the cycle between the 2008/09 financial crisis and the 2020/21 pandemic, the market valued Lloyds as high as 1.7 times its tangible net asset value (TNAV).
Currently, the stock trades at just 0.9 times last reported TNAV of 52.4p per share. If the market reverted to valuing it at 1.7 times TNAV, the share price would be 89p. This is why I see prospects of decent capital gains from the current 47.5p price.
Of course, the perky analyst consensus on Lloyds’ earnings and dividends is based on the economic outlook as currently envisaged. It’s possible that as the government’s massive emergency support for businesses unwinds, a less rosy backdrop could emerge. On balance though, Lloyds’ shares look very buyable to me at the current price.