Lloyds Share Price Surpasses 100p: Is It Still a Bargain?

Lloyds Banking Group’s share price has crossed the significant threshold of 100p, currently standing at 101.05p. This marks a remarkable turnaround for the bank, which has seen substantial gains over the past year. With a rise of 90% in the last twelve months and 32.1% over the past six months, many investors are now questioning whether the stock remains undervalued.

The bank’s valuation has increased to £59.5 billion, positioning it as the 13th-largest company on the London stock market. This positive trend follows a challenging period during the Covid-19 pandemic, when Lloyds shares plunged to a low of 23.58p in September 2020. Those who invested at that time have since witnessed an impressive 328.5% surge in share value, demonstrating substantial growth compared to other stocks within the FTSE 100 index and the US S&P 500.

Investors, like those in my family who acquired shares at 43.5p in mid-2022, are enjoying a paper gain of 132.3%—not including dividends. This growth has not only been driven by increasing share prices but also by a robust dividend policy.

Dividends and Earnings Outlook

When we purchased Lloyds shares, they offered a dividend yield of approximately 5.5%, significantly higher than the broader London market. Since then, the bank’s annual dividend has increased by 58.5%, rising from 2p in 2021 to 3.17p in 2024. However, the soaring share price has reduced the current yield to 3.3%, only slightly above the FTSE 100’s average yield of around 3%.

The shares now trade at 15.3 times trailing earnings, resulting in an earnings yield of 6.5%. This provides a strong margin of safety, covering the current dividend payout twice over. Furthermore, the interim dividend for 2025 has been set at 1.22p per share, reflecting a 15.1% increase from the previous year. The bank also possesses billions in spare capital, which is intended to buffer against potential loan losses and bad debts.

Despite these positive indicators, concerns linger regarding the future economic landscape. Analysts anticipate that the Bank of England may reduce its base rate at least twice in 2026, which could compress banks’ net interest margins and subsequently lower earnings and cash flow. Additionally, a potential downturn in the economy could result in a stagnant housing market and an increase in loan defaults.

Investment Decision: Hold or Sell?

Currently, based on the bank’s fundamentals, I would not recommend purchasing Lloyds stock. The share price has risen to a point where it no longer meets my criteria for a value investment. However, I am not inclined to sell my existing holdings either. The substantial profits gained from what many consider a ‘boring’ business create a reluctance to divest.

For now, I plan to maintain my position and monitor the situation closely. As the market evolves, so too will the considerations for future investment decisions regarding Lloyds Banking Group. Investors should weigh the impressive gains against potential economic shifts before making any moves.