Lloyds‘ (LSE: LLOY) shares are up 152% in the last five years, soundly beating the FTSE 100 which is up 51%. On top of such ample appreciation in the share price, the dividends have been soaring too. Payouts have more than tripled since 2021. An investor watching from the sidelines might be kicking themselves at the missed opportunity.
Here’s another way of looking at it. How high might Lloyds’ shares climb in another five years? Will the dividend be multiples higher in 2031? I confess that I’m lacking the foresight necessary to give accurate answers to those questions. But using a data-driven approach, perhaps I can get an idea of what to expect.
Predictions
The dividend’s simple to project – if we choose a hypothetical growth rate. I don’t think the supercharged growth of the last few years is likely to be repeated, but the 10-year growth rate of 5.49% looks achievable (though by no means guaranteed).
If Lloyds can continue growing at that pace, then the current 3.27% dividend yield would grow to 4.65% by 2031 with dividends reinvested.
The share price is trickier. It could easily go up, down or tread water for five years. But with share buybacks a priority and earnings on the rise, I’m optimistic the banking sector could thrive. So let’s run a couple of scenarios.
The current Lloyds’ consensus forecast among analysts is for a 12% return by August 2027. If this above-average return was consistent out to 2031, then a £9,999 stake would have increased to £20,032 (dividends included).
A more modest return might be something like 6%. If that was consistent until 2031, then the £9,999 stake would grow to £15,552 instead.
A buy?
It should be pointed out that this is entirely speculative. And the predictions get harder the further out you go. It’s entirely possible Lloyds ends up down over the period and the dividend gets slashed or even cancelled.
A lot can happen in half a decade. Lest we forget that five years ago we were still battling through the worst pandemic in living memory and had two horrible wars about to erupt in other corners of the globe. Looking at the years ahead, the concerns about a possible artificial intelligence (AI) stock market crash seem ominous too.
With all that said, Lloyds is in a better place than it has been in ages. Interest rates are in a sweet spot for banks – not so high as to cause lots of defaults on loans, but not so low that borrowing and lending is largely unprofitable.
While no investor should rely on future predictions, I wouldn’t be surprised if the next few years are good for the bank. I think the stock’s worth a look.
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John Fieldsend owns shares in Lloyds.
This story originally appeared on Motley Fool
