Global stock markets may be rattled but the Lloyds (LSE: LLOY) share price has been admirably firm. In fact, it’s quietly having a solid run.
Over the past 12 months, Lloyds shares are up more than 40%. Stretch that to five years and they’ve more than doubled, rising 110%. All dividends are on top.
That will come as a pleasant surprise to investors who recall the long slog that followed the financial crisis. So is the FTSE 100 bank turning into the reliable dividend growth machine of yore?
It’s not without risk. Banks remain exposed to the wider economic cycle, and their own missteps. Lloyds trailed last year’s banking rally, as worries mounted over a potential £3bn bill from a motor finance mis-selling scandal. That issue hasn’t gone away, but no longer seems to be front of mind for investors.
Rewarding shareholders
The group’s full-year 2024 results in February helped turn the mood as Lloyds announced £3.6bn in total shareholder distributions and gave reassurance that asset quality remains strong.
The final quarter of 2024 saw net interest income rise slightly to £3.3bn, as margins edged up to 2.97%.
Despite all the trouble over trade tariffs, Lloyds shares have risen a solid 17% over the last three months, and held flat over the past month. At the time of writing, they trade at 11.6 times earnings. That’s reasonable, though no longer a bargain. The price-to-book ratio now sits at exactly one. This suggests they’re fully and fairly valued but not cheap. Last year, the P/B ratio was just 0.6.
Long-term view
There may not be much in the way of short-term gains from here. But over the longer term, the picture still looks positive. Lower interest rates would squeeze net interest margins, but might also bring benefits.
Cheaper borrowing supports the housing market, reduces bad debts, and boosts mortgage demand. Lloyds, through Halifax, is still the UK’s biggest mortgage lender.
Broker forecasts suggest group operating margins could jump from 17.4% to 41.7% this year. If that proves correct, it would mark a significant step forward. So would the forecast income boost of £1.5bn from strategic initiatives by 2026.
The trailing yield of 4.4% has fallen as the share price climbs, but remains comfortably above the FTSE 100 average of 3.5%. Lloyds is forecast to yield 5.1% this year, nicely covered by earnings at 2.1 times.
Positive outlook
The 17 analysts offering one-year share price targets have settled on a median of 78.4p. If that plays out, it would mark a 9% gain from today’s 71.9p. Combined with the yield, that’s a total return of around 14%. A £10k investment could grow to £11,400 in a year. Hardly stellar, but given the recent strong run certainly not disappointing.
Of course, no forecast is gospel. That said, I’m already sitting on a 75% gain after holding for just a couple of years and plan to stick with Lloyds for 20 years or more.
Over that sort of time frame, I expect the rewards to build up nicely, even if the short-term path is bumpy. There are no guarantees to any of this of course, especially if tariff wars tip the UK into recession. Yet despite their strong run, I still think Lloyds shares are well worth considering today.
