It’s been a fantastic 12 months for the Lloyds (LSE: LLOY) share price, which has rocketed more than 80%. Over five years, it’s up 145%. Dividends are on top, giving long-term investors plenty to celebrate. It’s truly impressive but begs the question, can it shine next year too?
This is a FTSE 100 bank, remember. Not a whizzy growth stock but a solid blue-chip with a £57bn market-cap. It has a chequered history too, having been bailed out to the tune of £20.3bn during the 2008 financial crisis.
People forget that taxpayers got their money back. The shares flatlined for 15 years as Lloyds licked its wounds, but now they’re flying. Which is a little strange given that this is now a conservative business that sells everyday financial products like mortgages and savings accounts on the domestic UK market.
FTSE 100 comeback kid
It makes an awful lot of money doing it though, and serves up generous distributions to shareholders. In full-year 2024, it posted an underlying profit of £6.3bn on net income of £17.1bn. It hiked the dividend by a meaty 15% and unleashed a £1.7bn share buyback programme.
Yet Lloyds can still get into some scrapes. It was the biggest culprit in the PPI scandal, shelling out compensation of £21.9bn, and its Black Horse division is now taking a hit from the car finance scandal. Third quarter 2025 profits slumped 36% to £1.17bn as the board set aside an extra £800m towards compensation. The total bill could hit £2bn. Despite that dip, Q3 profit still beat estimates of £1.04bn. Lloyds is pretty resilient.
All the big banks have done well lately and a key reason is higher interest rates. They’ve boosted net interest margins, the difference between what they charge borrowers and pay savers. But analysts expect both the US Federal Reserve and Bank of England to cut interest rates this month, and follow up with another two or three 25 basis point cuts next year. If that happens, margins could be squeezed.
Dividends, share buybacks and growth
Lower interest rates would boost the UK economy and housing market though. That would be good news for Lloyds as it’s the UK’s biggest mortgage lender via subsidiary Halifax.
When I bought Lloyds in 2023 the shares were dirt cheap with a price-to-earnings ratio of around six. Today, the P/E’s nudging 20. After such a strong run I’d expect the growth to slow but what do the experts say?
The 17 analysts offering one-year share price targets produce a median target of just over £1. Today, the shares cost around over 97p, so we’re only looking at modest growth of 4% or so by next Christmas. Ho-ho humdrum.
The explosive share price has driven down the trailing yield to a modest 3.27%. This is forecast to hit 3.75% in 2025, and 4.34% in 2026. Lloyds clearly isn’t the bargain it was but I still think it’s well worth considering. Investors must accept the returns are likely to be more modest from here, and take a long-term view. They might also target FTSE 100 stocks that are still cheap – there are more where this came from.
