Could this dividend news boost Lloyds’ share price?

Year to date, Lloyds shares are up about 30%. Edward Sheldon believes some positive news on the dividend front could boost the share price further.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Lloyds Bank (LSE: LLOY) shares have had a good run recently. This year, Lloyds’ share price is up about 30%. Over 12 months, the FTSE 100 bank stock is up nearly 60%.

Can Lloyds shares keep rising? I think it’s certainly possible. Today, there has been some big news on the dividend front. And I’m not convinced this news is fully priced into the stock at present.

Lloyds shares: dividend ban lifted

The news I’m referring to is in relation to the Bank of England’s (BoE) ban on UK bank dividends.

Early last year, the BoE banned UK banks such as Lloyds from paying out dividends to shareholders. The aim was to ensure UK banks had enough capital on hand to support the economy during the coronavirus pandemic (the worst economic conditions in 300 years).

In December, the BoE eased the ban slightly, which allowed Lloyds to pay a very small dividend (0.57p per share) for 2020.

However, this morning, the regulator completely removed the dividend ban, saying its stress test had shown the banking sector is well-placed to cope with the impact of Covid-19 on the economy.

Big dividends on the way?

This development is great news for Lloyds’ shareholders. This year, City analysts expect the UK bank to pay out dividends of 2.08p per share. At Lloyds current share price of 47.6p, that payout equates to a prospective yield of 4.4%. That’s very attractive in the current low-interest-rate environment.

Share price boost

Indeed, it’s so attractive that I think it could increase demand for Lloyds shares from both private investors (ie retirees seeking income) and institutions such as pension funds.

This could potentially push Lloyds’ share price up further. It’s worth noting that immediately after the BoE dividend news, analysts at Jefferies raised their price target for Lloyds shares from 55p to 57p. That’s about 20% above the current share price.

When you consider that Lloyds shares currently have a forward-looking price-to-earnings (P/E) of less than eight and offer a prospective yield of around 4.4%, they certainly look attractive from a value-investing point of view.

Risks to consider

Of course, there are plenty of risks to consider with Lloyds shares. One is that the actual dividend for 2021 could be very different from the dividend forecast. The figure of 2.08p per share I mentioned above is simply the average analyst estimate.

At times, these consensus forecast figures can be way off the mark. At this stage, we really don’t know what kind of dividend Lloyds will pay for 2021. Earlier this year, the bank said it would update the market on interim dividend payments with its half-year results.

Another risk to consider is there could be further Covid-19 setbacks for the UK economy. This could impact Lloyds’ profitability and share price. It’s worth noting that the UK economy grew more slowly than expected in May.

Overall however, I think the outlook for Lloyds’ share price is attractive. I wouldn’t be surprised if its shares rise further in the second half of the year, and beyond.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

5 investment trusts to consider for a new 2025 ISA

The biggest challenge when starting an ISA is choosing which stocks to buy. Investment trusts can make it a whole…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Have I left it too late to buy Nvidia shares?

When the whole world was racing to buy Nvidia shares, Harvey Jones decided they were overhyped. Does the recent dip…

Read more »

Dividend Shares

I asked ChatGPT to pick me the best passive income stock. Here’s the result!

Jon Smith tries to make friends with ChatGPT and critiques the best passive income pick the AI tool suggested for…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Hargreaves Lansdown’s clients are buying loads of this US growth stock. Should I?

Our writer's noticed that during the week after Christmas, many investors bought this US growth stock. He asks whether he…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Greggs shares plunge 11% despite growing sales. Is this my chance to buy?

As the company’s Q4 trading update reveals 8% revenue growth, Greggs shares are falling sharply. Should Stephen Wright be rushing…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Will ‘biggest ever Christmas’ help keep the Tesco share price climbing in 2025?

The Tesco share price had a great year in 2024. And if 2025 trading continues in the same way, we…

Read more »

Investing Articles

This dirt cheap UK income stock yields 8.7% and is forecast to rise 45% this year!

After a disappointing year Harvey Jones thinks this FTSE 100 income stock is now one worth considering for investors seeking…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

With much to be cheerful about, why is this FTSE 250 boss unhappy?

JD Wetherspoon, the FTSE 250 pub chain, is a British success story. But the government’s budget has failed to lift…

Read more »