Image source: Getty Images
Lloyds (LSE: LLOY) shares have had a turbulent time lately, along with almost every other FTSE 100 stock.
But over the last year, the journey hasn’t been too shabby. Despite plunging 11% in the last week, Lloyds is still sitting on a 22% gain over 12 months.
Add in a dividend yield of around 4.75%, and investors who’ve held on have enjoyed a total return approaching 27%.
Not bad at all, especially given the chaos out there.
Is this FTSE 100 stock a buy?
Global trade worries and political tensions have knocked Lloyds back, just as it was hitting its stride.
Markets welcomed its full-year results published on 20 February, choosing to look past concerns over the motor finance mis-selling scandal, and focus on the board’s hefty £1.7bn share buyback programme, a sure sign of confidence.
The numbers weren’t perfect, though. Annual profits dropped 20%. Net interest margins, the difference between what Lloyds pay savers and charges borrowers, and a key profitability metric, dipped 16 basis points to 2.95% as interest rates started to ease.
That’s something to watch, especially if the Bank of England cuts rates faster than expected in response to recent economic turbulence. Some are now predicting four quarter-point rate cuts this year, while they were previously predicting just two.
On the other hand, lower interest rates might lift mortgage demand, boosting demand for Lloyds as the UK’s number one lender via subsidiary Halifax.
Lloyds also set aside £700m more for potential motor finance compensation, pushing the total provision towards £1.15bn. There’s still a lot of uncertainty over how that will play out, with a key court ruling due this month.
As a mainly UK-focused bank, it won’t be directly hit by tariffs, but if the UK economy slows, people may borrow less, struggle to make repayments and draw down their savings. All of which puts pressure on banks like Lloyds.
Still, there are reasons for cautious optimism. The 17 analysts who’ve crunched the numbers think Lloyds shares could be worth just under 79p in 12 months’ time.
Growth, dividends, and buybacks
That would be an increase of more than 18% from today’s 67p. Combine that with the forecast 5.25% dividend yield for 2025, and an investor is potentially looking at a total return of around 23.25%.
If correct, that would turn £10,000 into £12,235. Which doesn’t sound bad to me.
Forecasts like these need to be taken with a healthy pinch of salt, especially today. Many were made before the recent market dip, and sentiment can shift quickly. But for long-term investors, moments like this can offer rare chances to pick up quality income shares at a discount. Lloyd shares look good value with a trailing price-to-earnings ratio of 10.2.
I hold Lloyds shares myself and have no plans to sell. I’m thinking in terms of years, and with luck decades, not days or weeks.
Investors who are focused on steady dividends and patient growth might consider taking advantage of recent volatility. Although they should brace themselves for more ups and downs, as we wait to see how trade wars pan out. Not to mention that mis-selling case. It could go either way. In the longer run, I remain optimistic.
