It’s time we all took a long, cold look at the Lloyds share price

Lately, the Lloyds (LSE: LLOY) share price has been running red hot. Despite recent market volatility, it’s more than doubled in the last three years. Plus it’s thrown lots of dividends at investors too. I hold the stock myself, and I love it. But is there a danger of getting carried away by recent performance?

Several contributors to The Motley Fool are sceptical about Lloyds. I’m a huge fan, but this made me think I need to calm down, and take a cold hard look at whether it merits my full-throated backing.

Can this FTSE 100 star continue to shine?

So what’s worrying my fellow Fools? They’re worried about the poor outlook for the UK economy, and understandably so. We’ll be lucky to get any growth this year, and given Lloyds’ pure domestic focus, that will hurt. So I get that.

Another recent concern is that falling interest rates would cut net interest margins, the difference between what banks pay savers and charge borrowers. Higher rates have been a huge profit driver in recent years.

I’m less worried myself, as interest rates now seem more likely to rise than fall, if the Iran war drives up oil prices, inflation and interest rates. My concern today is that mortgage demand will slump as a result, in a huge blow to Lloyds as it’s the biggest lender of all, via subsidiary Halifax.

There are other worries. Lloyds investors breathed a sigh of relief on Monday (30 March) when the Financial Conduct Authority said banks will pay a total of £9.1bn to draw a line under the motor-finance mis-selling saga. That’s £2bn less than previously feared. But there’s a chance this may be challenged in the courts, which means the saga isn’t over yet. I’m sorry, but I can’t bring myself to worry over that. It’s a short-term threat. I invest for the long term.

Another threat is that young and hungry challenger banks are quietly munching into market share of the big high street banks. So has all that cooled my ardour?

I still love this income machine

But as well as those cons, I can see an awful lot of pros. Lloyds is making a heap of money. Full-year 2025 profits jumped 12% to a mighty £6.7bn, which allowed it to hike the dividend by 15% and unleash a £1.75bn share buyback.

CEO Charlie Nunn is diversifying into growth areas like insurance and wealth management, to make the business less reliant on the interest rate cycle.

The popular vote seems to be in favour of Lloyds, as it’s shown resilience during recent turbulence. In fact, Lloyds shares climbed 6% last week, and are up 35% over one year. Yet they still look cheap, with a forward price-to-earnings ratio of just 9.95.

While the fast-rising share price has knocked back the dividend yield to 3.7%, the board is still pursuing a highly progressive policy. Market expect the yield to top 4.3% this year, then 5.1% in 2027.

I’m grateful for those insights from my fellow Fools, but investing is a personal decision, and mine is to stick with Lloyds. I’ll hold through the cycle, accepting there will be downs as well as ups, as with every stock. In cold, hard terms, I still think Lloyds shares are worth considering today.