The Lloyds Banking Group (LSE: LLOY) share price hit a 52-week high on 12 July, then came close again on 17 July.
It’s up 23% so far in 2024. And another 25% would take it to a five-year high. But what might another five years do?
The big crash
First though, anyone who bought at the bottom in 2020 would have just about trebled their investment, including dividends.
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We can’t hope to time things that well too often. But buying when everyone else is panicking does look like the best way to profit from market ups and downs.
“Be fearful when others are greedy and greedy only when others are fearful,” said billionaire investor Warren Buffett.
The past few years really have shown just how wise those words are.
Lloyds outlook
So, what does the future hold for Lloyds?
Forecasts show an earnings hit this year. That’s not surprising, with the pressure the financial and housing markets are under. Lloyds, after all, is the UK’s biggest mortgage lender.
But analysts expect earnings growth to resume in 2025, and they put the price-to-earnings (P/E) ratio at only seven by 2026. In that time, the dividend yield could grow to 6.2%.
What about beyond then? Well, forecasts don’t reach any further. So here’s some of my own speculation.
Good times ahead?
I need a few assumptions. And I could be badly wrong on them, so don’t rely on my guesses here. If anyone is thinking of buying Lloyds shares, they should do their own research.
My first key takeaway is that Bank of England interest rates will fall significantly in the next couple of years, starting in the second half of 2024.
Secondly, the economy will see steady annual growth for the next five years. I don’t expect massive growth. But slow and steady is all we need when we invest for the long term.
Earnings growth
Forecasts show Lloyds’ earnings per share (EPS) growing at about 20% per year for the next two years. But there’s a fair bit of recovery in there, and I can’t see that pace continuing for very long.
But 50% over five years seems plausible, perhaps even conservative, without stretching those forecasts at all.
What might be a good long-term P/E? Let’s say 10, which is still some way below the FTSE 100 long-term average of around 15.
But I reckon it might be fair, to allow for the risk in the financial sector that I think we’re likely to see for a few more years yet.
Lloyds share price
Put those all together, and I reckon it could mean a Lloyds share price of around 86p in five years. That’s a gain of 45% from today. And then we could see around 5% per year in dividends.
If that comes off, I’d rate it as a great result.
But, there are no guarantees when it comes to earnings or dividends. And almost anything could go wrong in the next five years.
Still, I’m optimistic and Lloyds is a hold for my portfolio.
