The past five years have been pretty good for Lloyds Banking Group (LSE: LLOY) shares. When Covid-19 erupted in 2020, the Lloyds share price plunged dramatically, but then the FTSE 100 stock rebounded hard from those troubled times.
Lloyds levels up
Here’s how Lloyds shares have performed against the FTSE 100:
| Period | Lloyds | FTSE 100 | Difference |
| Six months | 39.7% | 8.7% | +31.1% |
| One year | 37.4% | 7.4% | +30.1% |
| Five years | 135.4% | 40.0% | +95.4% |
My table clearly shows the superior returns Lloyds stock produced over these periods. That’s only half of the story, because these gains exclude dividends. Here’s how the Black Horse bank’s dividends have risen over five years:
| Year | 2024 | 2023 | 2022 | 2021 | 2020 |
| Total dividend | 3.17p | 2.76p | 2.40p | 2.00p | 0.57p |
After a token payment of 0.57p a share during Covid-ravaged 2020, Lloyds lifted its yearly payout to 2p in 2021. By 2024, this leapt to 3.17p, a surge of 58.5%. To me, this reveals the board’s confidence in delivering sustainable and steadily rising cash payouts.
Furthermore, Lloyds has lots of spare cash on its balance sheet — billions of pounds — that it has used to buy back its own shares. The latest buyback began on 1 March and aims to retire £1.75bn of the bank’s shares by end-2025. This reduces the group’s share base, thus boosting future returns to patient shareholders.
What next for Lloyds?
My family bought into Lloyds in June 2022, so we have been shareholders for close to three years. We paid 43.5p a share for our stake, bought as a value/dividend/income play.
As I write, the Lloyds share price stands at 75.88p, valuing the bank at £45.6bn. Excluding dividends, we have a paper gain of 74.6%. Not bad for a ‘boring, old-economy’ FTSE 100 stock, agreed? Speaking of dividends, this share currently offers a dividend yield of nearly 4.2%, covered almost twice by historic earnings.
For me, Lloyds shares seem to have enjoyed a ‘flywheel effect’ as several positive factors combined to lift revenues, earnings, and cash flow. Over the past five years, economic stability, credit growth, and rising interest rates have dramatically boosted the group’s profitability.
What will it take for this virtuous circle to continue, lifting the Lloyds share price beyond its 2025 high of 79.19p (hit on 27 May)? I’d imagine these to be the core drivers behind the shares rising to 80p and beyond:
1. Interest rates staying higher for longer. Every time the Bank of England lowers its base rate, this hits banks’ net interest margins and reduces profits.
2. Stable or steadily rising UK house prices. As the UK’s largest mortgage lender, Lloyds is a huge bet on the property market’s health.
3. Increased demand for mortgages, business loans, credit cards, and so on. Loan growth has been weak lately, so a return to trend would be a plus for Lloyds.
4. Higher dividends and more share buybacks. Fundamentally, delivering higher future returns to shareholders should lift the stock’s valuations to higher highs.
Of course, the reverse is also true. Slower economic growth, a recession, a house-price crash, or increasing loan losses and bad debts could hit Lloyds hard. But my wife and I will keep riding the Black Horse for the long run!
