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I thought the Lloyds (LSE: LLOY) share price might do well when I bought the FTSE 100 bank a couple of years ago, but this well? It’s skyrocketed 75% in the last year and 120% over two years. What on earth is going on?
Blockbuster FTSE 100 stock
It’s the type of return usually associated with US tech mega-caps such as Meta Platforms, Nvidia or Tesla. Yet over 12 months Lloyds has outstripped them all, as my table shows.
| 1-year growth | 5-year growth | |
| Lloyds | 76% | 151% |
| Meta | 11% | 128% |
| Nvidia | 33% | 1,259% |
| Tesla | 28% | 118% |
It’s even beaten Meta and Tesla over five years, and the total return is better still because Lloyds has paid far more in dividends. At times it’s yielded more than 5%. Meta yields 0.33% and Tesla nothing. Only Nvidia outpaces Lloyds over five years, thanks to its enormous 1,259% surge.
Top turnaround play
Lloyds shares needed around 15 years to recover their equilibrium after being hammered by the 2008 banking crisis. Stock performance tends to be cyclical and after such a strong run the law of gravity alone suggests the bank should slow.
When I bought it, the price-to-earnings ratio was around six or seven. Today it sits near 14. That’s still below today’s FTSE 100 average of around 18, but no longer a blinding bargain. The price-to-book ratio has climbed on my watch too, from roughly 0.6 to around 1.1. Both figures suggest the bank doesn’t have the same stellar recovery potential.
Another shift is the trailing yield. It’s slipped to 3.5%, which is inevitable given the share-price growth. However, Lloyds has lifted the interim 2025 dividend by 15%, so it intends to keep income flowing. Analysts expect yields of 3.84% for 2025 and 4.44% for 2026. Meta, Nvidia and Tesla investors won’t get that.
Interest rate cut threat
After yesterday’s Budget (November 26), which some analysts call deflationary, hopes are rising for an interest-rate cut in December and possibly three more next year. If correct, that would push base rates down from 4% to 3%. It would be good for consumers and the housing market, yet would squeeze big banks’ net interest margins. Analysts watch that metric closely because it feeds through into profits and ultimately the share price. A plus is that a revived housing market would help Lloyds, the UK’s biggest mortgage lender via subsidiary Halifax.
The Budget did bring relief in one area, with no windfall tax on banks. That outcome was trailed, so the share-price reaction was small.
Running through these numbers, I think Lloyds will struggle to grow at quite the same pace. Yet I still see a decent long-term investment case. It’s a domestically-focused bank and while the slow-moving UK economy won’t make life easy, but with dividends and share buybacks the total return should be positive over time. Investors might consider buying if they want steady income and gradual growth, without the drama of big US tech.
This story originally appeared on Motley Fool
