The Lloyds Banking Group (LSE:LLOY) share price has been on quite a journey so far this year. It’s up 28% over the past six months and 55% over one year. This is impressive, although the key level of 50p has been somewhat elusive. It traded at a high of 50.44p recently, but is currently back around 46p. Given the current outlook though, I’m bullish on the company going forward.
Recent and upcoming news
The first reason I think the Lloyds share price could offer value is due to potential dividend payments. In news earlier this week, the Bank of England announced a removal of caps on bank dividend payments. For those not aware, this restriction was put on the large UK banks in order to boost financial stability during the pandemic. Retaining cash within the business instead of paying it out as dividend income helped to protect against losses from bad debt.
Historically, some investors bought Lloyds shares specifically for the income payments. This was negated during the pandemic, which is one factor that I think saw the share price drop last spring. Now it’s a different outlook. I’ll have to wait for upcoming half-year results to see what the dividend policy will be. Yet I think we could definitely see some positive news in this regard.
As such, I think the Lloyds share price could rally as investors looking for income start to pile in again.
The expected half-year report is another reason that I’m bullish on the Lloyds share price at the moment. The Q1 trading update spoke of a “solid financial performance”, which led to enhanced and upgraded guidance.
For example, both customer deposits and loans grew in Q1. As a traditional bank, this will increase profitability in the long run. In fact, statutory profit after tax for the quarter was almost double that of the previous quarter! If this performance is carried through into the half-year announcement, I think the share price will head higher.
Potential Lloyds share price rally, but risks remain
The final reason that I’m bullish at the moment relates to the broader outlook for the UK economy. Lloyds is a very British institution and it often correlates to the overall state of the economy. When the UK is booming, the Lloyds share price is likely to be rising.
Over the past few months, it’s been clear that the UK economy is starting to get out of the woods. The unemployment rate is back below 5% and inflation is ticking above 2%. If GDP growth and consumer confidence improve over the summer, this could be a natural boost for Lloyds shares.
There are some risks to my view. As a large mortgage lender, I am sceptical as to how long the property boom can continue. The end of the stamp duty holiday could negatively impact revenue for the bank from this arm. Another risk is increased competition from specialist firms. For example, the recent IPO of foreign exchange firm Wise is concerning for this revenue stream for Lloyds.
Even with these risks, I’m still bullish overall on Lloyds and would consider buying shares.
