It has been a good year for shareholders of Lloyds Banking Group (LSE: LLOY). The Lloyds share price has leapt by more than a third in 2021. Meanwhile, the FTSE 100 index (of which Lloyds is a member) has climbed by 13%. However, thanks to the Covid-19 pandemic, 2020-21 has been a volatile and unpredictable ride for this widely held stock. Nevertheless, I expect the Black Horse bank’s shares to continue to gain ground in 2022. Here’s why.
The Lloyds share price’s rise and fall
In December 2019, mere months before the coronavirus crisis crashed global stock markets, the Lloyds share price was riding high. On 16 December, the stock hit its 2019 closing high of 67.25p. But then Covid-19 sent the bank’s shares collapsing to record lows. On 22 September 2020, the stock hit an intra-day low of 23.58p, before recovering to close at 24.29p. At that time, one could buy a share in the UK’s leading retail bank for less than the cost of a packet of crisps. I thought this was crazy.
Hence, on 24 September 2020, with the Lloyds share price standing at 24.58p, I praised the stock. I said, “Today, I’d happily buy and hold Lloyds shares for life”. As I write on Thursday afternoon, the shares trade at 49.46p, almost unchanged on the day. Happily, LLOY has more than doubled (+101.2%) in the 13 months since I made my call. Nice.
Lloyds stock closed out 2020 at 36.44p, but then went into decline, closing at 33p on 29 January 2021. However, it’s been rising fairly steadily since then, hitting its 2021 intra-day high of 51.58p on 2 November. Also, it hit its 2021 closing high of 51.11p on the previous day. But I can see this stock reaching — and even exceeding — 60p in 2022. Here’s how.
Lloyds to hit 60p in 2022?
For the Lloyds share price to hit 60p in 2022, it needs to add another 10.54p to today’s price of 49.46p. That’s an increase of just over a fifth (+21.3%) from current levels. I see that as achievable, subject to improvements in four areas.
First, I’d like to see strong economic growth, leading to increased consumer spending and unsecured borrowing. Second, I predict small and steady increases in the Bank of England’s base rate. As interest rates rise, this will lift Lloyds NIM (net interest margins), boosting lending profits.
Third, I’d hope to see lower loan reserves and losses, raising Lloyds’ earnings per share and making its stock look more attractive. Fourth, I’d look to Lloyds to raise its cash dividends during 2022. The current dividend yield of 2.5% a year is below the FTSE 100’s 4.1%. Hence, there’s plenty of scope for the bank to hike its cash payouts next year.
Lloyds is a binary bet on 2022
If all or most of these positive events happen in 2022, then they could help to underpin and even lift the Lloyds share price. However, this path to higher profits has one giant hurdle across it: Covid-19. If the UK fails to win the war against the coronavirus, then we might see further social restrictions or lockdowns in 2021-22. Of course, this might spook investors, sending the Lloyds share price lower. I don’t own Lloyds shares today, but I’d buy today in the hope of a sustained recovery in 2022!
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Cliffdarcy has no position in any of the shares mentioned. 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.