The Lloyds (LSE:LLOY) share price, along with the broader FTSE 100, is basically flat over the last 12 months.
If I’d invested £10,000 in the UK high street bank in January, my 21,276 shares would be worth pretty much exactly what I paid for them.
But Lloyds paid two dividends worth a total of 2.52p per share in 2023. So my shares would have produced passive income of £536.13 during the year.
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City analysts believe Lloyds will pay 2.76p of dividends per share in 2024. And then increase that again in 2025 to 3.24p per share.
At the current share price, this means very healthy yields of 5.8% and 6.9% over the next two years. This forecast has some investors eyeing the black horse bank for a potential buy-in point.
Uplifting
The Lloyds share price has been wallowing in the doldrums for over a decade. But there have been 14 UK interest rate rises since December 2021. As one of Britain’s largest lenders, this means the bank has been able to improve its profit margins on the loans and mortgages it issues.
And Lloyds has been buying back its own shares in vast numbers and deleting them from the market. After £2bn of share buybacks in 2022, it has earmarked another £1.15bn until April 2024. This suggests the board see this current 47p share price as undervalued.
In theory, by reducing supply, share buybacks improve the price of each individual share that remains in investor hands.
I can see that its price-to-earnings ratio of 6.5 is around half the FTSE 100 average. This is much lower than its UK and European rivals. So Lloyds does look cheap at this price.
Greener pastures
Another upside take for Lloyds is that has the best green credentials of any major bank in the UK. Don’t dismiss this just yet, as it could translate to bigger sales in 2024.
Earnings per share will grow 73% between 2022 and 2024, City forecasters suggest.
And in September Leeds University switched all of its banking over to Lloyds because “it has the lowest fossil fuel investments” of any UK bank.
Cambridge University, with £200m of assets, could follow suit. Rival Barclays has banked the UK university for over 200 years. But that relationship looks dead and buried because of the bank’s refusal to stop investing in oil and gas.
A new bank would earn around £10m in fees each year, if it has products that do not support “fossil fuel expansion”, the university said.
In sum
On the downside, the UK looks close to a recession in 2024. This will probably reduce the number of loans Lloyds makes. Markets are pricing in around 1% of cuts next year, so the value of Lloyds’s current book may also come down.
There are niggling doubts about the health of the banking sector after the crisis in March 2023, too. That saw US lender Silicon Valley go under, followed by Credit Suisse in Europe.
The Lloyds share price remains a topic of hefty disagreement. Some wouldn’t touch it with a bargepole, while some of my Motley Fool colleagues see it as a bargain.
For its new business potential and a near-7% yield in future, I think Lloyds just made my watchlist.
