Lloyds (LSE: LLOY) shares have had a storming run and some investors might be wondering how long it can last.
They’re up 42% over the last year and 140% over five years. That’s an impressive recovery by any measure. But this isn’t just a growth story. There’s income up for grabs, with the trailing dividend yield sitting at 4.1%. In February, the board also announced a fresh £1.7bn share buyback.
The FTSE 100 banking sector is back in favour generally, and long-term investors are finally seeing the rewards after years of post-financial-crisis disarray.
FTSE 100 comeback
I wasn’t looking for a quick win when I bought Lloyds in 2023, but I’ve got one anyway. As ever, nothing’s guaranteed, and after playing catch-up, future share price gains may come more slowly. But the combination of income and modest growth still appeals over a longer timeframe.
Results published on 1 May were a mixed bag. Q1 net income rose 4% year on year to £4.39bn, while net interest income climbed 3% to £3.29bn. However, statutory profit after tax fell 7% to £1.1bn, reflecting higher operating costs and a £309m impairment charge.
That said, the fundamentals look firm. Return on tangible equity stayed robust at 12.6%.
The economic backdrop remains tricky. The end of the stamp duty holiday in March has hit mortgage activity, while inflation and interest rates remain high. That’s a challenge for Lloyds, given its exposure to the UK housing market through its Halifax brand.
Cuts to interest rates would offer some relief, but they might also shrink the bank’s net interest margins. Inflation is driving up operating costs. As did April’s national insurance hikes. It’s not an easy balance.
Forecasts look encouraging
Analysts are positive about the dividend outlook though. They expect Lloyds to pay 3.43p per share in 2025, up 8.2% from 2024’s payout of 3.17p per share. Based on today’s price of 77.16p, that would mark a yield of 4.44%.
In 2026, that payout is forecast to rise another 17% to 4.01p. That’s a forward yield of 5.2%, calculated on today’s price. In 2027, the stock could pay 4.6p per share. That would be a 14.7% uplift.
| 2024 | 2025 | 2026 | 2027 | |
| Dividend per share | 3.17p | 3.43p* | 4.01p* | 4.60p* |
* forecast dividend
Naturally, these aren’t guaranteed. Any downturn in earnings, cash flow or profits could force the board to rethink. That’s a risk with every stock.
Modest valuation
Lloyds still looks reasonably priced. It trades on a trailing price-to-earnings ratio of 12.1, while its price-to-book (P/B) ratio stands at 1. That means investors are paying £1 for every £1 of assets. When I bought in, the P/B ratio had dropped to 0.6, so the valuation is no longer as cheap as it was.
The 16 analysts offering 12-month share price targets produce a medium figure of 83p, a 7.5% climb from today’s levels. Combined with the forecast 2025 yield investors could be looking at a 12% total return.
It’s not a blockbuster outlook, but still points to another year of steady progress. Of course, it’s not guaranteed. Forecasts are just educated guesses.
After a strong run, some of the heat is likely to come out of the Lloyds share price. But for long-term investors who value consistency, I still think this stock is well worth considering today.
