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A string of ‘once in a generation’ challenges have weighed on Lloyds‘ (LSE:LLOY) shares over the last decade.
A seismic shift in UK trade policy (Brexit), the most severe pandemic in a century (Covid), and a prolonged cost-of-living crisis have taken their toll. Ultra-low interest rates have also played havoc on the FTSE 100 bank by pulling down its margins.
Combined, these factors mean that Lloyds’ share price is 9.9% cheaper than it was 10 years ago. As a result, £10,000 worth of shares back then would now be worth £9,008.
Yet it’s not all terrible news, as our investor wouldn’t be out of pocket despite this drop. They’d also have received total dividends of 24.83p per share in that time, meaning they’d have made £3,257 in passive income.
Adding all this up, our investor would have made a profit of £2,265 on their investment, or a total return of 22.7%.
A better outlook
However, this isn’t much to celebrate, considering the total return for the FTSE 100 over that timeframe is far superior, at 85.9%. To put this in perspective, our investor would have made a profit of £8,590 if they’d put £10k in an index tracker instead.
Still, “the past is a foreign country,” to quote English novelist LP Hartley. So here I’m considering what the future may hold for Lloyds’ share price. Right now, 18 analysts have ratings on Lloyds’ shares. And the average 12-month target price among them is 75.83p, up 10.5% from today.
With further dividends tipped as well, Lloyds’ shares could well deliver a very decent return over the next year. City analysts are predicting a total dividend of 3.59p per share for 2025. If those average share price and dividend estimates are accurate, an investor today would enjoy a total return of 15.7%.
Are Lloyds shares a buy?
Yet I’ve significant reservations about whether the shares can deliver these impressive returns. With the UK economy struggling for traction, and competition heating up in key product segments, I feel the bank has an almighty struggle on its hands to grow earnings.
Meanwhile, its net interest margins (which, at below 3%, are already wafer thin) will remain weak if — as expected — the Bank of England continues cutting rates in 2025 and 2026.
These phenomena could provide a drag on the bank’s profitability over the longer term too. And on top of this, Lloyds’ share price could be hammered if the Financial Conduct Authority (FCA) imposes thumping, multi-billion-pound fines if it’s found guilty of mis-selling motor insurance.
That’s not to say it’s all bad at Lloyds. It’s making strong progress to digitalise its operations, delivering huge cost efficiencies and improving the experience for online banking. It also has considerable brand power to lean on to help it grow business.
But on balance, I think the risks to Lloyds and its shares are considerable. Despite those bullish price forecasts, I’d rather find other UK stocks to buy for my portfolio.
