Here’s where I think the Lloyds share price will be at the end of 2026

Having risen nearly 30% since January 2024, our writer considers what could happen to the Lloyds share price by 31 December 2026.

| More on:
Person holding magnifying glass over important document, reading the small print

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.

Making predictions about the Lloyds (LSE:LLOY) share price is difficult. The profits of banks are sensitive to the wider economy meaning their earnings can fluctuate significantly from one period to another.

As a shareholder of the bank I know how frustrating its share price performance has been over the past five years. Since May 2019, it’s fallen by 10%.

But more recently it’s staged something of a comeback. And this raises a key question: can it continue?

Looking to the future

In my opinion, I think the bank will do well over the next two or three years.

I believe we’re now entering a period of economic stability after years of turmoil following Brexit, the pandemic and Russia’s invasion of Ukraine. UK GDP is expected to grow modestly this year and inflation is starting to come down. Lloyds generates nearly all of its income in Britain, making it a good barometer for the domestic economy.

But that also makes it heavily reliant on the performance of an economy that has deep-seated issues associated with poor productivity and a lack of investment.

The Bank of England is also expected to start cutting the base rate soon.

It’s sometimes tricky assessing how interest rates will affect a bank’s performance. Interest income will fall as a result of a declining margin. But the risk of bad debts should recede.

With over £450bn of interest-earning assets on its books, a 10 basis point reduction in its margin will lose it approximately £450m in revenue. However, those on variable rate loans will see their repayments fall, reducing the possibility of defaults.

The impact of defaults was particularly severe during the third quarter of 2022, when the bank booked a charge (cost) of £668m in its accounts to cover the possibility of bad loans.

As I believe we’re now entering calmer waters, I’m expecting these provisions to be reversed resulting in a credit (income) being recorded in the bank’s accounts.

Overall, I therefore expect the firm to be a net beneficiary of slightly lower interest rates.

What do others think?

And the analysts appear to agree.

For the year ending 31 December 2024 (FY24), they’re forecasting profit after tax of £4.16bn.

With a current market cap of £34.2bn, it means Lloyds trades on a multiple of 8.2 times expected earnings. The average for the FTSE 100 is around 10.5, so the shares look cheap using this measure.

The same ‘experts’ are forecasting earnings of £4.8bn in FY25 and £5.47bn in FY26.

If their predictions come true, and the same earnings multiple is applied, the bank’s market cap could be £44.9bn, by the end of 2026.

That would imply a share price of 71p, a 31% premium to its closing price on 10 May 2024.

I believe this is a realistic prospect. But I could be wrong as Lloyds has frequently disappointed shareholders.

Passive income

But I hold shares in the bank primarily for the dividend income that the stock generates. In FY23, it paid 2.76p a share. Analysts are expecting this to rise over the next three years – 3p (FY24), 3.37p (FY25) and 3.81p (FY26).

Of course, dividends are never guaranteed.

But it’s this combination of potential capital growth and the possibility of earning healthy dividends that make me want to keep hold of my shares.

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.

James Beard 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

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »