Lloyds Banking Group (LSE: LLOY) shareholders have had a disappointing 2022. Early enthusiasm came to an end in late February, when 2021 results coincided with the Russian invasion of Ukraine. The Lloyds share price is now up just 2% over the past 12 months, while the FTSE 100 has gained 10%.
Today I want to examine three things that I think could give Lloyds shares a boost over the course of 2022. And yes, there are risks too, which I will come to.
Dividend growth
Those 2021 results benefited from a reversal in impairments. Where Lloyds had set aside £4.2bn in 2020 against possible bad debts, 2021 saw the balance sheet boosted by a £1.2bn impairment credit. Without that, pre-impairment profits rose only marginally.
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The bank announced a 2p full-year dividend, which is a dividend yield of 4.5% on the current Lloyds share price. That’s good, but I think it’s too early to gauge how dividends are likely to progress in the post-pandemic world.
We did get a positive hint, as Lloyds also embarked on a share buyback programme of up to £2bn. But I want to see what the bank says about its 2022 dividend plans at the interim stage. First-half results are due in July.
Interest rates
Interest rates can make a big difference to banking profits. That’s especially true for a domestic lender like Lloyds, the country’s largest mortgage provider. The pickings are meagre when base rates are down at 0.25%. But that is changing.
The Bank of England has already raised rates twice, up to 0.75% so far. The BoE will be keen to avoid hampering economic recovery. But with inflation topping 6% in February, further rises appear inevitable.
And while it might not be good news for mortgage borrowers, future increases could help lift the Lloyds share price.
Housing success
Lloyds’ move into the residential landlord business has been controversial. A bank should stick to being a bank and leave the property business to others, shouldn’t it? Thoughts like that will surely have been helping hold the Lloyds share price back.
I generally believe a company should stick to doing what it does best. But in this case, I think the move could fit Lloyds nicely.
As well as being the UK’s top mortgage lender, Lloyds could become our biggest private landlord too. I see those as being synergistic parts of the same business. And further progress in that direction should help.
Lloyds share price risk
What are the risks that might cause all of these to come unstuck? As I see it, the big one is surely the economy. Inflation, especially in fuel prices, coupled with high interest rates, is not good for private individuals and small businesses seeking financial services.
So I reckon we could see further setbacks for the Lloyds share price in 2022. In fact, that seems to be the story of Lloyds… as soon as we emerge from one crisis, we lurch into another.
Still, we must get back to positive economics and upbeat growth prospects sooner or later, mustn’t we? I’m holding and looking forward to such times.
