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Lloyds Banking Group has experienced a recent downturn, reflecting broader trends in the FTSE 100 index and the financial sector. The share price fell by 7.75% over the past week, although it has shown signs of recovery with a 1.89% increase this morning.
In the context of the recent market volatility, Lloyds' performance over the past year provides a more positive perspective. The share price has risen by 27.86% in the last 12 months, which, when considering dividends, translates to a total return of approximately 33%. This strong performance underscores that long-term shareholders remain in a favorable position.
The stock currently offers a dividend yield of 5%, which is comfortably supported by earnings, with a coverage ratio of 2.8 times. This suggests that the company has the capacity to sustain and potentially increase dividend payouts. In 2022, Lloyds increased its dividend per share from 2p to 2.4p, and further raised it to 2.76p in 2023, marking a 15% rise.
Forecasts indicate that the dividend may continue to grow at an average annual rate of 12.4% over the next three years. While dividends are subject to change, the current trend appears relatively secure compared to many other companies.
The Bank of England's interest rate decisions could also affect the relative attractiveness of Lloyds' dividends. A reduction in interest rates might lower bond yields and savings rates, making Lloyds' dividend yield more appealing.
Lloyds (LSE: LLOY) ' share price is currently trading at 56p, below the FTSE 100 average price-to-earnings ratio of 14.3 times, with Lloyds at 7.3 times earnings. This valuation places Lloyds at a lower multiple compared to the broader index.
The company has also allocated £450 million to address a potential motor finance mis-selling issue, which may not be sufficient, and the full impact may become clearer in the coming year.
Recent thesis updates reflect mixed views on Lloyds' performance. Citi downgraded the stock to neutral, citing it as the only major UK bank to miss pre-provision profit forecasts, while RBC Capital Markets had previously downgraded it to ‘sector perform’ after the shares reached their target price of 60p.
The stock’s short-term trajectory may be uncertain, and while it may not see a dramatic increase in the immediate future, the dividends are expected to provide steady returns. The potential for further share price movement may depend on overall economic conditions and investor sentiment in the UK.
