We’re near the end of another year, and the Lloyds Banking Group (LSE: LLOY) share price has disappointed investors again.
I start each year thinking surely Lloyds will bounce back this time. But it never does. All it’s managed in the past 12 months is a weedy 3% gain.
That leaves Lloyds down 10.5% over five years, even though we’ve had good dividends. The cash did stop for Covid, but it came back as soon as the regulator allowed.
Dividends
The dividend is one of the things I think might boost the Lloyds share price in the next 12 months. But, as it hasn’t done the job so far, what might be different this time?
We’re looking at a forecast 2023 dividend yield of 5.3%. And it would be more than twice covered by earnings.
What’s more, broker forecasts show the yield growing in the following two years too.
But when it comes to forecasts, it’s all about confidence. And so far, I just don’t think the big investors have had much of that.
Still, I think we might be close to a change in sentiment.
Forecast growth
There’s a consensus that 2024 could see FTSE 100 ordinary dividends come very close to the record year of 2018. So even better than before the pandemic then.
And the City expects financial stocks to lead the way in earnings growth.
I think that might change the mood for the better. But one thing recently in the news has poured cold water on it all. I’m talking of interest rates, and the Bank of England’s gloomy mood. Still, they must come down in 2024, mustn’t they? It would surely help.
Price double
Right now, we’re looking at a price-to-earnings (P/E) ratio of 6.5 based on 2023 forecasts, which is very low.
A doubling, even if earnings don’t rise, could see that reach 13 in 2024. That’s still below the FTSE 100’s long-term average. And banks have typically commanded higher valuations over the long term.
It would drop the 2024 dividend to about 3.2% though.
But if it keeps rising, with strong cover by earnings, that could still be a fair valuation.
Other dividends
But then the Lloyds dividend is a bit overshadowed by others right now.
When we have M&G on 9%, and British American Tobacco on 10%, why take a risk on Lloyds?
Those stocks have their own risks. But I do think it’s a valid factor.
So maybe we’ll need to see those big yields coming down, ideally through share price rises, to make Lloyds look more attractive.
Hang on a minute…
Hmm, now, I just thought… Did I really say Lloyds shares disappointed investors in 2023?
I got that all wrong, at least if I’m talking about myself. I want to buy more in the years ahead, so I’m happy if they stay cheap.
That way I can lock in better dividends for less money.
So maybe the Lloyds share price might double in 2024. Or at least in the next few years. But I hope not.
