Could the Lloyds share price double in the next 12 months?

I don’t want the Lloyds share price to double in a year, because I want the chance to keep buying while it’s low. But might it happen?

| More on:
happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A doubling in the Lloyds Banking Group (LSE: LLOY) share price in the next year seems a bit far-fetched, I admit.

Even if it doesn’t happen, I’d say the bank still looks like a top long-term buy just for its 6% dividend yield.

If the share price and dividend stay the same for ever, I’ll be happy to buy more Lloyds shares every year. And I’d use the dividends to buy even more shares.

It all changes

Things won’t stay the same, of course. For one thing, forecasts show dividend growth in the next two years. If they’re right, the yield could be close to 8% by 2026.

They put the 2026 price-to-earnings (P/E) ratio at 5.5. But what’s a fair P/E bank valuation? That’s a tough question.

In times like this, I’d say they should be valued lower. But that 5.5 isn’t much more than a third of the FTSE 100‘s long-term average. It must be too low, mustn’t it?

Even if the Lloyds share price did double, that 2026 P/E would still be a fair bit below the Footsie average at 11. And we’d still have a 4% dividend yield. Not so long ago, that would have seemed about right.

Interest rate hit

Even with that, I do think interest rates are likely to keep Lloyds shares down for a while yet. Hopes for an early cut in 2024 look to have been dashed. I mean, Bank of England (BoE) Governor Andrew Bailey seems reluctant to even talk about it. And there’s a feeling that rates could stay above 4% for a couple of years yet.

Lloyds, as the UK’s biggest mortgage lender, faces more bad debt risk than its high street rivals. Still, in the bank’s FY 2023 statement on 22 February, it posted only a modest impairment charge.

And cash flow at Lloyds seems to be just fine right now too. With the results, the bank also said: “Given the group’s strong capital position, the board has also announced its intention to implement an ordinary share buyback programme of up to £2.0 billion.”

Buyback effect

This means future earnings and dividend cash will be spread across fewer shares. And bigger per-share valuation measures should push the share price up, I’d hope.

Well, despite a series of strong capital returns, not much has happened yet.

The Lloyds share price has been pretty much flat for three years, and it’s still down 25% in five years. But more buybacks could help boost any possible doubling for the stock.

Can the shares double?

So what’s my feeling about Lloyds shares doubling now?

I doubt we could see it in the next 12 months. I think our current economic state could keep people away from bank stocks for a while yet.

But I do think a combination of earnings and dividend growth, coupled with a revaluation, could send the shares strongly in the right direction in the next few years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »