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The Lloyds (LSE: LLOY) share price is on fire. It’s up 47% over one year and 88% over two. Happily, I bought Lloyds shares a couple of years ago and I’m thrilled with how they’ve done.
Yet during this time, Lloyds has been under the shadow of the motor finance mis-selling scandal. It has more exposure than any other FTSE 100 bank, thanks to its Black Horse car loans division. With some predicting the total cost to the industry could hit £44bn, investors feared Lloyds might face a PPI-style deluge of claims. It only set aside around £1.2bn. But the mood has now lifted.
FTSE 100 booster
On Monday (4 August), Lloyds enjoyed a mini relief rally after the Supreme Court mostly sided with banks. Analysts at RBC Capital Markets quickly upgraded the stock to Outperform. They expect the regulator to take a moderate approach when setting out compensation later this year.
RBC also flagged some core strengths: the bank’s deposit base, steady earnings, and an appealing total return.
It’s not just about the share price either. Lloyds has also been paying generous dividends, which are important for long-term shareholders like me.
When I first bought in, the trailing yield was around 5.5%. Now it’s down to 3.92%, which looks disappointing. However, that’s mostly because the share price has soared. Yields are calculated by dividing the dividend per share by the share price. If the share price climbs, the yield falls (and vice versa).
In reality, the board is increasing payouts at speed. Last week (24 July), it hiked the interim payout by 15% to 1.22p per share. So the dividend is rising far faster than today’s 3.6% inflation rate.
Lloyds continues to make lots of money. Q1 results showed a steady 2% rise in underlying profit to just under £3.6bn. Net income climbed 6%. That helped the board stick to its full-year outlook, and reaffirm guidance both for 2025 and 2026.
Predicting income and growth
Let’s say someone invested £10,000 in Lloyds today. What could they hope for over the next 12 months? Analysts have produced a one-year median share price forecast of 89.88p. That’s 11.1% higher than today’s 80.82p.
That does mark a slowdown, of course, but that’s hardly surprising after the recent stellar run. If that proves accurate — and no forecast is ever guaranteed — that £10k could grow to £11,110.
Our investor will get dividends on top. The yield is forecast to hit 4.38% in 2025, and that could generate another £438 over the year. Total return: £11,548. That’s a tidy 15.5%.
The shares currently trade on a price-to-earnings ratio of 12.85. That’s not excessive, and suggests the valuation does leave room for further growth. When I bought, the P/E was half that, so Lloyds isn’t as big a bargain today. But even at this level, I think investors might want to consider buying.
Personally, I wouldn’t expect another 47% rise over the next year. The last two years were unusually good. But with dividends rising and the motor finance scandal fading, I still think Lloyds is worth considering with a long-term view.
