Some FTSE 100 stocks had a cracking 2024, but the Lloyds Banking Group (LSE: LLOY) share price was not one of the biggest winners.
Lloyds shares are up around 20% in the past 12 months. But Barclays has climbed more than 80%. Lloyds’ relative underperformance surely has to be down to two key things.
It’s the UK’s biggest mortgage lender, so it potentially faces the most risk when interest rates fall. And it could be a big loser in the current car loan misselling probe.
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Forecasts
City forecasts for earnings and dividends are still quite bullish, however.
Is a forward price-to-earnings (P/E) ratio of 8.4 for the 2024 full year low for a FTSE 100 bank? In other circumstances I’d say yes for sure. But a couple of things give me pause.
One is that these predictions show the P/E rising above nine in 2025. And that’s that’s not great, because it’s based on a forecast earnings per share (EPS) fall.
If the economy continues to falter, with Lloyds potentially facing pressure on its lending margins, I reckon such a fall really could be on the cards.
Lloyds guidance
Still, at least the 2024 forecasts surely can’t be far off at this late stage. The board reaffirmed its own guidance for 2024 at the time of its Q3 update in October.
I won’t go into the guidance details here. But it seems to line up well enough with the current City outlook and valuation.
Though analysts expect EPS to fall in 2025, they do have a return to growth on the cards for 2026. That should send the P/E down again.
Lloyds’ own guidance is upbeat on that timescale. Back at H1 time in 2024, we had an interim update in which the bank spoke of “maintaining its medium-term guidance for 2026.“
Uncertain year
That’s based on seeing a better return on tangible equity in 2026 than in 2024. And a better capital generation too.
The trouble is, Lloyds hasn’t so far said much about 2025. In October, we saw some economic assumptions for the year ahead, and they included slow but consistent economic growth.
But with zero growth between July and September 2024, that might prove to have been a bit optimistic.
The bank said the risks “around this base case economic view lie in both directions.” As 2024 has just ended, I think the 2025 outlook is more uncertain than it’s been for months.
Dividends
Forecasts show dividends growing reasonably strongly in 2025 and 2026, following an expected rise for 2024. If they’re right, we could see 3.8p per share by 2026 for a 6.9% yield on the price at the time of writing.
Analysts have a cautious Buy consensus right now, with more on a Hold stance than anything else. The average share price target is modestly ahead at 65p.
I’m going to go with them and hold my Lloyds shares. I do think the bank faces more risks than its rivals in 2025. But I’m in it for the long-term dividends.
