Lloyds share price forecast: An attractive dividend stock?
As the Russian invasion of Ukraine continues to weigh on the valuation of European equities, Lloyds Banking Group (LLOY) could be affected if the conflict escalates and other countries become directly involved.
Financial institutions, including Lloyds — one of the UK's biggest retail banks — could be exposed to lower business volumes, due to the sanctions imposed on Russia amid its hostile activities, while the macroeconomic environment in the UK and other developed countries is being aggravated by inflationary pressures and a slower-than-expected response from central banks to contain the escalation in prices.
What can we expect from the stock of one of Britain’s largest banks in this challenging environment? In this article, we analyse the latest Lloyds share news, along with its price action and fundamentals, to outline plausible scenarios for the future.
Company history
Lloyds Banking Group, currently the third-largest retail bank in Britain behind Barclays (BARC) and HSBC (HSBA), was founded in Birmingham in 1765. It expanded during the 18th and 19th centuries by taking over a number of smaller banking businesses.
In 1995, the bank merged with the Trustee Savings Bank (TSB) to form Lloyds TSB — at that point the largest bank in the UK by market share, and the second-largest (to HSBC, which had taken over the Midland Bank in 1992) by market capitalisation.
Amidst the credit crunch in 2008, the Lloyds TSB Group took over HBOS – itself formed by a merger between Halifax plc and the Bank of Scotland in 2001. The UK government allowed the deal to bypass competition law with the goal of avoiding another Northern Rock-style collapse. After the rescue of HBOS, the Lloyds TSB Group was renamed Lloyds Banking Group – the name it continues to hold to this day.
In 2009, the British government took a 43.4% stake in the group following the liquidity crisis. The European Commission reacted to the move by ruling that the group must sell a portion of its business by November 2013, as it interpreted the stake purchase as state aid. In March 2017, the British government confirmed that its remaining shares in the group had been sold.
Lloyds Banking Group currently has 26 million customers in the UK and posted statutory profits after tax of £5.9bn in 2021. The group is listed on the London Stock Exchange (LSE) and is a constituent of the benchmark FTSE 100 index.
Lloyds share analysis: Technical views and price drivers
As of 8 July 2022, the Lloyds share price has fallen close to 15% so far this year, as the situation in Ukraine remains a concern for market participants. The escalation of the conflict could have a ripple effect on businesses within the region.
Moreover, the macroeconomic situation for most developed countries in the wake of the pandemic seems challenging, as inflation has accelerated dramatically.
Even though some central banks, including the Federal Reserve in the United States, have implemented contractionary monetary policies and aggressively hiked interest rates in response to soaring inflation, the right path towards achieving price stability and low unemployment continues to be elusive.
For banks such as Lloyds, higher interest rates could be beneficial, generating higher income from the loans extended by the firm. However, if the global economy decelerates and financial markets suffer amid a large-scale armed conflict, a decline in business volumes could offset the positive contribution of higher rates.
From a technical standpoint, the price action has posted multiple lower highs since the year started, which could favour a bearish short-term Lloyds share forecast.
However, the 41p horizontal support level highlighted in the chart held up quite well during the escalation of tensions between Russia and Ukraine in February, which makes it a relevant support area to watch moving forward.
Momentum indicators, as of 8 July, have been favouring a bearish Lloyds share price outlook as well. The Relative Strength Index (RSI) has been standing at 44, while the Moving Average Convergence Divergence (MACD) drifted to negative territory shortly after crossing below the signal line.
Lloyds fundamental analysis: Q1 2022 earnings
On 27 April, Lloyds reported its financial results for the first quarter of 2022.
According to the bank, its net income rose 12% to £4.1bn, reflecting double-digit increases across underlying net interest income and other income.
Despite a reduction in costs, underlying profit fell 7% to £1.8bn. That reflects a £177m impairment charge, including a limited charge for the weakening economic outlook. Ignoring this, underlying profits increased 26%.
The group said that “given the solid financial performance”, it now expects its banking net interest margin to be above 2.7% for the whole year.
Lloyds earnings in 2021
On 28 February, Lloyds reported its financial results covering the entire 2021 fiscal year. During the period, net interest income for the British bank grew 4% to end the year at £11.16bn ($14.54bn), while income from other streams grew 12% to finish at £5.06bn. Meanwhile, the bank reported a surge in profitability as it set aside less money for credit losses.
In 2020, amid the pandemic, Lloyds recorded a total impairment of £4.25bn. However, the financial institution decided to reduce its reserves by £1.2bn in 2021, which resulted in statutory profits of £5.89bn compared to the £1.39bn reported the previous year.
Average interest-earning banking assets ended at £445bn – up £10bn compared to the previous year – while the bank’s net interest margin advanced by two basis points to 2.54%.
By the end of the year, Lloyds CET1 ratio (Common Equity Tier 1) stood at 17.3%, resulting in a 110 basis points improvement compared to a year before, while the bank’s tangible net assets per share ended at 57.5p.
Last year, Lloyds paid a dividend of 2p. The interim dividend was paid in September, with the final dividend expected to be paid in May this year. Based on 2021’s payments, the dividend yield for LLOY is standing at 4.4%.
On the other hand, the consensus Lloyds share dividend forecast for 2022 is standing at 2.34p, resulting in a forward 5.2% dividend yield.
Lloyds share predictions: Analyst sentiment
Are Lloyds shares a ‘buy’, ‘sell’, or ‘hold’? According to data compiled by MarketBeat as of 8 July 2022, the consensus analyst recommendation for Lloyds shares was bullish, with a total of 5 out of 8 analysts currently rating the stock as a ‘moderate buy’. Two analysts gave it a ‘hold’ recommendation, while one rated it a ‘sell’.
The average Lloyds share price target stood at 55.50p, resulting in a 31.7% upside potential based on 7 July’s closing price of 42.14p if that target is hit.
The highest Lloyds Banking Group share price forecast from analysts for the next 12 months was set at 63p and the lowest at 44p.
On 22 April, HSBC analyst Robin Down raised the price target on LLOY from 46p to 51p while maintaining a ‘hold’ rating.
Barclays recently downgraded Lloyds to ‘equal weight’, setting a lower price target of 52p on 30 June. Deutsche Bank also lowered its target from 67p to 61p while maintaining a ‘buy’ rating in late May. Analysts appear to remain concerned about the impact of higher inflation and potential economic deceleration in the region due to the Russia-Ukraine war.
Analysts at Hargreaves Lansdown said the following about the Lloyds share potential after the bank released its Q1 results in 2022:
They concluded: “Overall, we commend the efforts to diversify, but these are a way off being the main event. In the meantime, Lloyds looks set to benefit from incremental interest rate hikes – but investors should be prepared for ups and downs given economic uncertainty.”
Lloyds share price forecast: Targets for 2022, 2025 and 2027
Meanwhile, algorithm-based forecasting service WalletInvestor provided a longer-term Lloyds share forecast for 2022 and beyond.
As of 8 July 2022, Wallet Investor was holding a moderately bullish outlook for Lloyds stock in the short term based on multiple technical readings, projecting LLOY to rise to 43.758p by 31 August.
For December 2022, the algorithm expected the stock to rise even further to an average price of 44.284p per share.
Despite the projected short-term gains, the baseline longer-term Lloyds share price forecast for 2025 was negative, as the algorithm expected that the price could decline to an average price of 31.375p by the end of the year.
Although it didn’t provide a Lloyds share price prediction for 2030, its five-year LLOY forecast suggested the stock could fall to 21.648p by July 2027.
When looking for Lloyds (LLOY) share forecasts, it’s important to bear in mind that analysts’ and algorithm-based projections can be wrong. While their projections are based on analyses of the LLOY historical stock price, it’s important to note that past performance never guarantees future results.
It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.
FAQs
Will Lloyds share price go up or down?
According to third-party forecasting service Wallet Investor as of 8 July, the Lloyds share price potential was negative. It predicted that the price could decline over the next five years.
However, such forecasts are drafted by analysing the historical price trend of Lloyds shares. They should not be considered a recommendation to buy or sell the stock, because many variables could weigh on the short-term and long-term performance of LLOY, and actual results could deviate significantly from these predictions.
Is Lloyds a good share to buy?
The Lloyds Banking Group is a robust financial institution with an appealing earnings generation capacity. The stock is currently offering an attractive dividend yield. However, its stock price has been declining lately amid the Russia-Ukraine war and increased inflation rates.
Whether Lloyds (LLOY) is a suitable asset for your portfolio depends on your own trading objectives and opinion, based on your own research. Remember – it’s important to reach your own conclusion about the company’s prospects and the likelihood of achieving analysts’ targets.
Why has the Lloyds share price been dropping?
As of 8 July 2022, the price of Lloyds Banking Group shares has been dropping amid worries about the possibility of the escalation in the war between Russia and Ukraine. Moreover, higher inflation in the United Kingdom and concerns about the start of a recessionary cycle could affect the demand and performance of loans offered by the bank.
Should I invest in Lloyds?
Whether Lloyds Banking Group shares (LLOY) are a good investment for you depends on your risk tolerance, investing goals and portfolio composition. You should do your own research and never trade money that you cannot afford to lose.
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