Wouldn’t it have been a nice Christmas present to see the Lloyds Banking Group (LSE: LLOY) share price getting back to strength?
Unfortunately, a combination of economic and political ailments have conspired to keep it depressed. And we’ve seen another lacklustre year for the UK’s biggest mortgage lender.
As it happens, I’ll be quite happy to see the Lloyds share price remain weak well into 2023. That’s because I intend to buy more, aiming to secure some long-term passive income. If I can snag a low price, I should be able to lock in higher future dividend yields on that purchase.
Dividend
That brings me to the Lloyds dividend, which I reckon could be a key deciding factor for 2023 share price progress.
We have a prospective yield for 2022 of around 4.8% to 5.2%, depending on which sources we consult. Forecasts are to be treated with caution. But this close to the end of the year, I don’t expect City analysts to be far out.
At the time of its third-quarter update, Lloyds spoke of a “robust financial performance in the first nine months of 2022.” And it was largely upbeat about the full-year outlook.
Forecasts
Where it gets interesting is that forecasts show the Lloyds dividend rising in 2023, getting close to a 6% yield. Will that happen, considering the prospects for the mortgage market in the coming 12 months? Well, the threats should be countered to so some degree by bank shares benefiting from higher lending margins. So I’m probably around 50/50 on that.
Either way, I expect the dividend could make a big difference in sentiment towards the Lloyds share price in 2023. Interim results could well have a real impact.
Bad debts
I’ll also be keeping a close eye on provisions for bad debts in 2023. And that’s another thing that could focus investors’ minds at the halfway point.
Lloyds made extensive provisions during the early Covid-19 years, and that played on investors’ fears. As it turned out, those provisions were significantly more pessimistic than needed, and the bank benefited from some subsequent reversals.
I can’t help thinking that, being cautious, Lloyds might well set aside more than is eventually needed to cope with the current economic downturn. But I just don’t know. The only way to be sure is to wait for the crunch to end and see what a post-recession analysis looks like.
Valuation
Through all of this, Lloyds shares are still on a very low valuation by traditional measures. We’re looking at price-to-earnings (P/E) multiples of under seven, less than half the FTSE 100‘s long-term average.
Do I think Lloyds deserves to be valued closer to that average, which would mean the share price doubling? In the long term, yes. But with the short-term risks the bank faces, I see little chance of it happening in the next couple of years.
I’m not going to try to forecast an actual share price for Lloyds by Christmas 2023. But for a general guess, I’d predict modestly ahead of today’s price.
