What is the outlook for Lloyds shares over the rest of 2021?
The Lloyds Banking Group has had an encouraging year to date, with the Lloyds share price up more than 38% so far in 2021. With Lloyds shares inching closer to pre-pandemic territory, what is the outlook for the rest of this year?
- Lloyds shares up 38.65% in 2021 thus far
- Market resistance remains at 50p benchmark
- £459m impairment release provides post-pandemic confidence
- Dividend yield of 5% forecast for 2021
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Where could the price of Lloyds shares go in the coming months?
Lloyds Banking Group has experienced a consistently improving share price since the turn of the New Year. Although it stagnated somewhat during the third nationwide Covid-19 lockdown, February sparked a swift acceleration from 33p to 39p by the end of the month. Three months on and Lloyds shares have risen further still, solidifying at the 48p mark as of 10 June.
With Lloyds shares on the cusp of breaking the 50p barrier, market sentiment suggests that the pandemic was not the fatal scenario that everyone feared. The Lloyds share price plunged to depths of 27p in April 2020 due to fears of mortgage and loan defaults, as investors sought to ascertain the worst-case effects of Covid-19.
Given how intertwined Lloyds is with the UK economy, it has been no surprise to see its share price recover in line with improving economic figures. With the Bank of England raising its forecasts for GDP growth to 7.25% this year, up from February’s forecast of 5%, it’s clear that Lloyds is well-positioned to take advantage of the pent-up consumer demand.
Can the Lloyds share price burst through the 50p barrier?
On 2 June, Lloyds shares touched a key price point at 50p. It has since retracted to around 48.6p. The potential for Lloyds to its current resistance at 50p rests largely on the shoulders of Prime Minister Boris Johnson. The Prime Minister is due to make a call next week on the UK’s slated ‘Independence Day’ of 21 June, when all Covid-19 restrictions are due to be eased.
If the June 21 relaxation forges ahead, this is likely to encourage unprecedented levels of consumer spending, which is very promising for major lenders like Lloyds.
The only potential issue for Lloyds is the UK’s housing market. As the UK’s leading mortgage lender, it has been buoyed in the last six months by the stamp duty holiday. However, the Bank of England revealed a sharp decline in mortgages in April compared with March, suggesting that the housing market could decelerate when the stamp duty holiday is removed at the end of June.
Are the strong dividend yield and recent impairment release a good sign?
In April, Lloyds reiterated its desire to return with a sustainable dividend policy, increasing investor confidence in the process. If analysts including Joseph Dickinson, who describes Lloyds' recent results as ‘stellar on all fronts’, are to be believed, a dividend yield of 5.6% is likely this year. Additionally, Antonio Horta-Osorio believes Lloyds is ‘well placed for sustainable success’. But July's H1 2021 results will provide a clearer picture of its dividend policy.
Lloyds has come a long way since Q2 2020 when it ring-fenced £2.4bn in impairment charges to cover potential losses. It recently confirmed £459m worth of impairment release, along with declining bad credit, freeing up more of its cash surplus into the market for customers, with more likely to be released by the end of 2021 if the positive sentiment remains.
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