The past five years have been very profitable for holders of Lloyds Banking Group (LSE: LLOY) stock. After the global threat from Covid-19 started to recede in 2021, the Lloyds share price has been one of the best performers in the elite FTSE 100 index. But after a seriously strong rise in 2025, I worry that this widely held share looks expensive. Should I sell after such stunning gains?
Lloyds leaps
As I write, the Lloyds share price stands at 101.05p, up 7.8% in the last month. It has also leapt 32.1% over the past six months and a whopping 90% over the last 12 months. Today, the Black Horse bank is valued at £59.5bn, making it the 13th-largest company listed on the London stock market.
Things weren’t always so rosy for Lloyds, whose shares collapsed during the 2020/21 Covid-19 crash. Before the discovery of effective vaccines turned the global tide, Lloyds shares plunged to a low of 23.58p in September 2020. Investors buying into the bank back then would have made out like bandits, with the shares soaring 328.5% since.
Over five years, the share price has surged by 181.2%, beating many of the go-go growth stocks that presently dominate the Footsie and US S&P 500. Disclosure: my family has owned Lloyds shares since mid-2022, paying 43.5p a share for our stake. So far, our paper gain is 132.3%, but this excludes cash dividends.
A dividend dynamo
We didn’t buy Lloyds stock expecting it to fly so high so soon. We bought into this old-economy British business for its dividends. When we joined the shareholder register, Lloyds shares offered a dividend yield of around 5.5% a year. That was well ahead of the wider London stock market at the time.
Since 2021, Lloyds’ annual dividend has jumped by 58.5%, rising from 2p in 2021 to 3.17p in 2024. But the steeply higher share price has dragged down the current dividend yield to just 3.3% a year. That’s only slightly ahead of the FTSE 100‘s yearly cash yield of around 3%.
What’s more, this substantially higher share price has pushed up the bank’s valuation fundamentals. The shares now trade on 15.3 times trailing earnings, delivering an earnings yield of 6.5% a year. This covers the current dividend payout twice over, which is a good margin of safety.
But do I sell?
The good news is that 2025’s interim dividend of 1.22p per share is 15.1% higher than 2024’s payout of 1.06p. Also, Lloyds is sitting on billions of pounds of spare capital — amassed to offset current and future loan losses and bad debts.
The bad news is that analysts expect the Bank of England to cut its base rate at least twice in 2026. This will reduce banks’ net interest margins, lowering their earnings and cash flow. Also, a weaker economy could lead to a stagnant housing market and higher loan defaults.
Frankly, I would not buy Lloyds stock today based on its current fundamentals, as it no longer fits my definition of a value share. That said, I’m also in no rush to sell our existing holding. Having made such great profits from this ‘boring’ business, it’s quite hard for me to sell out. Thus, I’ll sit on the fence for now!
