It’s been a great 5 years for Lloyds shares. What next?

Lloyds shares have had a fantastic half-decade, easily beating the FTSE 100 index over this period. But are these good times about to end?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Happy woman commuting on a train and checking her mobile phone while using headphones

Image source: Getty Images

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.

After years of limping along following the global financial crisis of 2007/09, Lloyds Banking Group (LSE: LLOY) shares have sprung to life. Indeed, the past half-decade has been a great time to own stock in the Black Horse bank.

Lloyds shares soar

During the Covid-19 crisis, the share prices of British banks plunged in a near-existential crisis. On 25 September 2020, Lloyds shares closed at 24.72p, but had more than doubled by end-May 2021.

Over the next three years, Lloyds stock zigzagged along, but was pretty much unchanged by mid-March 2024. However, since then, this popular and widely held share has done shareholders proud. Also, 2025 has been a terrific calendar year so far, with the share price leaping by 41.5% over six months.

Over one year, this stock has jumped by 27.3%, easily outperforming the wider FTSE 100‘s 8.7% gain over this timescale. Also, the shares have surged by 147.1% over the past five years — one of the better times in history to own UK banking stocks.

Don’t forget dividends

As well as delivering market-beating capital growth, Lloyds shares have also paid a rising stream of dividends. Here are the bank’s last four yearly cash payouts:

YearDividend
20243.17p
20232.76p
20222.4p
20212p

Over four years, Lloyds’ dividend has risen by 58.5% — or 12.2% a year compounded — a welcome delight for income investors.

Disclosure: my wife and I bought this stock for our family portfolio in mid-2022, paying 43.5p a share. With the share price standing at 75.4p as I write, we are sitting on a paper gain of 73.5% in three years. Not bad for a ‘boring’, blue-chip share, agreed?

No longer cheap?

Though we are pleased with the returns from our Lloyds shares over the past three years, I don’t expect these above-market gains to continue.

At the current price, this stock trades on nearly 12.2 times trailing earnings, delivering an earnings yield of 8.2% a year. The dividend yield has slipped to 4.2% a year. To me, these are not the fundamentals of a screaming buy.

That said, I do expect modest future gains from our Lloyds holding, especially if these three trends prove positive:

1. Rising UK economic growth. Lloyds is considered a bellwether for British commerce, so if the economy does well, so too should the bank.

2. A healthy housing market. As Britain’s largest mortgage lender, Lloyds has huge exposure to UK domestic property and will benefit if house prices keep stable.

3. Limited loan losses and bad debts. Though loan provisions have been creeping up, they are still low in historic terms. If credit conditions do stay favourable, that’s a bonus for banks.

Of course, if these trends reverse, then Lloyds shares could suffer. Also, broker estimates for 12 months from now are clustered around the current share price. Hence, brokers don’t expect great guns from this share over the next year.

In summary, Lloyds’ long-suffering owners have had a terrific five years, boosted by rising dividends and large share buybacks. While I expect further gains to come, and have no intention of selling at this time, I do not expect the next half-decade to be as rewarding as the last five years! As a deep-value investor, I would not be a big buyer of Lloyds stock at current levels.

The Motley Fool UK has recommended Lloyds Banking Group. Cliff D’Arcy has an economic interest in Lloyds Banking Group shares. 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

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Recently released: December’s lower-risk, higher-yield Share Advisor recommendation [PREMIUM PICKS]

Ice ideas will usually offer a steadier flow of income and is likely to be a slower-moving but more stable…

Read more »

Sunrise over Earth
Investing Articles

Meet the ex-penny share up 109% that has topped Rolls-Royce and Nvidia in 2025

The share price of this investment trust has gone from pennies to above £1 over the past couple of years.…

Read more »

House models and one with REIT - standing for real estate investment trust - written on it.
Investing Articles

1 of the FTSE 100’s most reliable dividend stocks for me to buy now?

With most dividend stocks with 6.5% yields, there's a problem with the underlying business. But LondonMetric Property is a rare…

Read more »

Investing Articles

Is 2026 the year to consider buying oil stocks?

The time to buy cyclical stocks is when they're out of fashion with investors. And that looks to be the…

Read more »

ISA coins
Investing Articles

3 reasons I’m skipping a Cash ISA in 2026

Putting money into a Cash ISA can feel safe. But in 2026 and beyond, that comfort could come at a…

Read more »

US Stock

I asked ChatGPT if the Tesla share price could outperform Nvidia in 2026, with this result!

Jon Smith considers the performance of the Tesla share price against Nvidia stock and compares his view for next year…

Read more »

Investing Articles

Greggs: is this FTSE 250 stock about to crash again in 2026?

After this FTSE 250 stock crashed in 2025, our writer wonders if it will do the same in 2026. Or…

Read more »

Investing Articles

7%+ yields! Here are 3 major UK dividend share forecasts for 2026 and beyond

Mark Hartley checks forecasts and considers the long-term passive income potential of three of the UK's most popular dividend shares.

Read more »