What next for Lloyds shares? 40p or 60p?

After bottoming out before Valentine’s Day, Lloyds shares are among the FTSE 100’s best performers in the past two months. Do they have further to go?

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When I check brokers’ lists of the most frequently traded shares in the London stock market, one company is always near or at the top. Lloyds Banking Group (LSE: LLOY) shares are among the most widely held and traded every week, without fail.

Lloyds leaps

That said, Lloyds shareholders — including many of its 63,000 staff — had a nervy start to 2024. After closing at 47.71p on 29 December 2023, the share price closed at 41.19p on 13 February. By this point, it had lost 15.8% of its value in under seven weeks.

However, Lloyds shares have since bounced back. As I write, the stock stands at 50.56p, having leapt 22.7% since its pre-Valentine’s Day close. This values the Black Horse bank at £32.2bn — a mere fraction of its worth before the global financial crisis of 2007-09.

This also leaves this stock a tidy 28.3% above its 52-week low of 39.42p, hit on 24 October 2023. Then again, the shares have been a bit higher, peaking at 54.28p on Monday, 8 April.

Here’s how this bank stock has performed over six timescales:

Five days-5.3%
One month+2.0%
Six months+16.5%
YTD 2024+6.2%
One year+2.3%
Five years-22.0%

Although Lloyds shares are up almost a sixth in six months, they have risen by just 2.3% in 12 months. Meanwhile, the FTSE 100 index is up 3.4% and 1.6% respectively over these timescales.

Over five years, this stock has been a disappointment, losing more than a fifth of its value during a period when the Footsie rose by 6.3%. But all these figures exclude cash dividends, which are getting increasingly generous from British banks.

Up, down, or sideways? Who knows?

I’m no phony fortune teller or psychic, plus I don’t own a crystal ball. Hence, I try to avoid making predictions about short-term price movements. What I will say is that Lloyds stock doesn’t look expensive to me today.

At the current share price, this stock trades on a modest multiple of 6.8 times earnings. This translates into an earning yield of 14.8% — close to double that of the wider Footsie.

What’s more, Lloyds stock pays a market-beating dividend yield of 5.5% a year, versus 4% for the FTSE 100. Even better, this payout is covered over 2.7 times by trailing earnings, so it looks pretty solid to me. Indeed, analysts expect this reward to rise in 2024-25.

I like Lloyds

For the record, my wife and I own Lloyds shares in our family portfolio, paying 43.5p a share for our stake in June 2022. We bought this stock for its passive income, which has been rolling in nicely. Also, the group is buying back its shares to reduce its shareholder base, thus boosting future returns.

We have no intention of selling our Lloyds shares anywhere near current price levels, as I feel they have much further to go. For me, it’s next stop 60p, rather than a plunge back to 40p.

Nevertheless, analysts expect bank earnings to fall in 2024, driven down by rising bad debts and loan losses. Also, credit growth is weak and household budgets are looking stretched. But I’m happy to sit tight, riding out the ups and downs over the years, while collecting cash along the way!

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.

Cliff D’Arcy has an economic interest in Lloyds Banking Group shares. 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.

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