Is the Lloyds share price set to soar?

This FTSE 100 bank has a high dividend and a positive outlook. Finlay Blair wonders whether the Lloyds share price is set to rise over the coming few months.

| 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.

Scene depicting the City of London, home of the FTSE 100

Image source: Getty Images.

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 (LSE:LLOY) has been a staple of the UK banking scene for many years. It has been able to thrive in domestic retail and commercial banking and has resisted the flashier investment-banking sector. The bank, however, has had a relatively underwhelming year with the share price remaining flat. Will the current outlook and recent financial results encourage the Lloyds share price to soar?

Positive results?

Lloyds latest results saw pre-tax profits fall to £1.6bn from £1.9bn a year before but comfortably beat analysts’ expectations of £1.4bn. The lender has benefited from rising Bank of England base rates over the last year. This has boosted the net interest margin — the difference between the cost of funding and the price charged for its lending. With further base rate rises expected in the next year, this is only likely to further increase Lloyds’ margins.

However, as inflation has raised the cost of living in the UK, Lloyds has been forced to add £177m to its reserves to protect against bad loans. As a result, it’s likely to see a hit to its bottom line if the current trend of rising prices continues.

A strong outlook or future risks?

The bank accounts for approximately 19% of the domestic UK mortgage market through its various brands. Because of this domination in mortgages, Lloyds’ success is heavily tied to the strength of the housing market.

The UK government has given banks more power to offer mortgages to those who would not normally be able to get one. The mortgage guarantee scheme was introduced in 2021 and it has allowed banks to offer riskier mortgages that are backed by the government if they were to default. This has increased the number of mortgages Lloyds can sell and it will likely improve profitability.

However, there are risks with this high exposure in the mortgage industry. Rising interest rates will likely increase the number of mortgages that consumers are defaulting on. This means Lloyds will have to syphon more cash into reserves to allow for an increase in mortgage defaults, as well as for the more general loan defaults I mentioned earlier.

A notable FTSE 100 dividend

The bank has a positive outlook and, with a price-to-earnings ratio of 6.1, the Lloyds share price seems good value for money. However, I feel the share price is unlikely to dramatically soar in the coming year due to the uncertainty ahead in the economy and banking industry.

This said, the lender’s 4.3% dividend is enough to tempt me to add the FTSE 100 share to my portfolio. Even if the share price remained at the current level, a 4.3% dividend would sweeten the investment. The company has the financing to maintain the dividend with only 26% of profit being paid out to investors.

Overall, I believe that the Lloyds share price is unlikely to soar dramatically in value in the coming months. This said, the strong dividend and positive outlook is enough to tempt me to add the FTSE 100 share to my portfolio with my next chunk of savings.

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.

Finlay Blair has no position in any of the shares mentioned. 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

Man smiling and working on laptop
Investing Articles

3 FTSE 250 shares with low P/E ratios and sky-high dividend yields!

Searching for the best bargains that London has to offer? Here's a handful from the FTSE 250 I think are…

Read more »

Investing Articles

Why is Apple stock lagging the S&P 500 in 2025?

Our writer is wondering whether now might be an opportune time to snap up shares of the largest company in…

Read more »

Investing Articles

Here’s how an ISA investor could build a £20k passive income with UK shares

Looking to make a five-figure passive income in retirement? Here's how a blend of UK shares and cash savings could…

Read more »

Investing Articles

£10,000 in savings? Here’s how an investor can target £3,560 in annual passive income

Paul Summers explains how an investor could target making thousands of pounds in passive income by holding great dividend stocks…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Up 490%, Lion Finance Group is a new name on the FTSE 250… but what is it?

Many investors won’t be familiar with Lion Finance Group, but the FTSE 250 stock has surged 490% over five years.…

Read more »

Growth Shares

I think this is the most punished FTSE stock in the market right now

Jon Smith talks through a FTSE company that has endured problems but is one he believes has a brighter future…

Read more »

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

Stock market correction! 1 growth share down 53% to consider buying now

This writer highlights a growth stock that has hit a rough patch in recent weeks. Here's why it might be…

Read more »

Investing Articles

Here’s why the Tesco share price has dropped 18% in a month!

Tesco's share price has lost nearly a fifth of its value since mid-February. Is this FTSE 100 dividend stock now…

Read more »