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At 49 p Lloyds Banking Group (LSE: LLOY) share price still stuck below 50p, but getting closer. What does it take to get out of Lloyd’s shares? Or maybe double, and out of penny share territory?
I am not predicting when or when the doubling will happen. But I think Lloyds is undervalued, and I’d like to think what could drive the price up.
It will be paid.
Despite the poor share price performance, I am happy with the returns on my Lloyds investment. But I think that’s one of the things that’s going to be at the top of investors’ minds, and we’re not there yet.
Dividends started to come back after the financial crisis, but then we had Brexit and Covid. In the year The year 2021 offered a 4.2% yield, which was about average. FTSE 100.
The forecast will rise
According to forecasts, it will reach 5.1% this year and 6.5% in 2024. That’s good growth, although it’s not enough to justify a doubling in price – it means the 2024 yield is only 3.25%.
I think it points to a higher stock price in the future. But I think investors will need to see longer-term dividend increases for the sentiment to change. On a related note, Lloyds’ 2022 share buybacks should help. Future dividend cash will be spread over fewer stocks, and that means slightly better yields.
Economy
The economy must be a big factor holding back bank stocks. In one way, higher interest rates should benefit Lloyds to combat inflation. It’s the UK’s biggest mortgage lender, and high rates mean big loan profits.
On top of that, we have a concern for the property sector. I don’t share these fears, at least not in the long run. But in the short term, few people who take out a new loan will benefit. And the increased risk of default could mean Lloyds has to set aside more money for bad debt provisions – as if it were unwinding provisions.
Therefore, I doubt we will be able to push Lloyds’ share price higher until we see a brighter economic outlook.
More of the same
Basically, though, I think Lloyd just needs to do the same. This means being conservative with the balance sheet and returning excess capital only when the risk is low. I like to share purchases because they are not expected in the future. If the bank raises its dividend, on the other hand, we can see if the share price pain should reverse anytime soon.
Lloyd’s chose to focus on UK banking, and became big in the credit and property markets. I’ve liked that strategy for a long time and I’d like to see Lloyds stick to it.
Future profits?
Will Lloyds share price continue to rise? I think so, in the long run. But I’m afraid it will take a few more years for the things you can drive to become good. Investors may need to be patient for some time yet. And I just keep doing my part. Oh, and maybe buy more Lloyd’s shares when I think they’re cheap.