Stock market

What could dividend forecasts do for Lloyds’ share price over the next three years?

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What can help? Lloyds Banking Group (LSE: LLOY) share price will rise somewhat over the next few years?

I think it’s mostly emotion. And sentiment seems to have been firmly against banks in recent years. But I see signs that this may change.

For one thing, Lloyds shares with another. FTSE 100 High street banks, ticking a bit.

Dividend Forecast

Before I delve further into market sentiment, let’s take a look at how Lloyds is looking based on current broker forecasts.

The following table shows forecasts for this year and the next two, looking at how the price-to-earnings (P/E) ratio and dividend yield (DY) might go. And we will see how the profit forecast will be covered by the income.

The year 2024 2025 2026
Forecast P/E 9.2 7.4 6.2
Prediction DY 5.3% 6.0% 6.6%
to cover 1.9x 2.2x 2.4x
(Sources: Yahoo!, MarketScreener)

Now, I have to say, every time I see a stock with a P/E of just six and a dividend yield of 6.6%, I wonder what’s wrong.

But after three years of forecast earnings and dividend growth, this is what Lloyds looks like for 2026. And when I see potential cover at 2.4 times earnings, it makes me think the market is at fault, not the stock.

passion

But, emotions are a fuzzy thing. I have been watching for ages for the FTSE 100 to break the 8,000 point barrier.

Not that a specific number means anything specific. But financial headline writers seem to love such things, and they can be really optimistic.

Although the Footsie is struggling to reach and stay above 8,000, I’m generally over optimistic at the moment. Some of this will be due to the start of the new financial year, and a whole new stocks and shares ISA allowance.

But hopes of falling inflation and interest rates are also cheering people. Oh, and it’s sunny(ish).

Danger ahead

Having said that, we’re not out of the woods yet. Indeed, disappointing US data has put a bit of a damper on the outlook for European interest rates.

Lloyds is particularly at risk if rates stay high for too long. It is the UK’s largest mortgage lender. And should the Bank of England feel the need to continue the squeeze, the market share may not see as good value as I do.

What appears to be euphoria now firmly behind recovery and growth stocks, eg Rolls Royce Holdings. Four baggers in two years? We Lloyds shareholders can only dream.

profit

Still, I think sentiment could eventually come back behind the banks and send Lloyds shares climbing again. And I think it’s those profitable forecasts that can make the difference.

We may need to see another set of interim results, at least, to assess the 2024 cash situation.

But a 6.6 percent dividend yield through 2026, which is more than twice earnings? This is much more attractive to me than the 1.6% marked for Rolls-Royce for the same year.


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