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Lloyds Banking Group (LSE: LLOY) shares are down around 19% from a recent high of around 115p, and now sit near 93p. The low price got me thinking: this could be a great opportunity for an investor opening a new Stocks and Shares ISA this tax season.
Of the UK’s ‘big four’ banks, Lloyds is the most popular choice for ISA investors due to its low cost, high yield and product familiarity. That makes it an excellent start-up stock to consider.
But popular or not, the question remains: is this really an opportunity to buy cheap, or can the price continue to go up?
What analysts think
Lloyds shares look a little cheap right now, but that doesn’t mean they’ll bounce back anytime soon. The situation in the City is cautiously optimistic rather than forward.
On average, analysts give it a Hold or Neutral Buy rating, with average 12-month targets in the 105p-110p range – above today’s price.
Some top sellers are more optimistic. Both Deutsche Bank again Barclays expect the price to reach between 120p and 125p over the next year.
Dividends remain strong, and most forecasts point to earnings growing slowly rather than shrinking, which helps support that excellent outlook.
Looking closer
Under the bonnet, the latest full-year numbers were mixed. Lloyds remained profitable, but earnings fell by around 5% compared to 2024. This was largely due to additional costs associated with the ongoing financial scam.
However, the bank still holds a statutory return on tangible equity (RoTE) of around 13% by 2025. Also, management has improved its 2026 target to more than 16%, confident that it is among the best performing large banks in Europe.
And it wasn’t just riding on the coattails of high interest rates. The bank has been investing heavily in new products and digital services, which have already delivered around £1.4bn of additional revenue (targeting £2bn by the end of the year).
That kind of recurring, payment-style income helps smooth things over when loan margins are squeezed as interest rates fall.
Capitalization is another one. As it continues to generate more cash than is needed each year, dividends and share buybacks are always well supported. Which brings us to the next point…
A dividend powerhouse
Salary remains an important part of Lloyds’ appeal, in my opinion. In some dealer forecasts, dividends could reach around 4.3p per share by 2026. That could mean a yield of more than 6% at today’s price if those predictions come true. For the patient investor, that kind of capital return – along with any price recovery – can make a real difference to long-term results.
Of course, there are risks, in particular, higher-than-expected costs from car finance reviews. In addition, if the UK economy weakens further, or interest rates fall faster than expected, both could hurt profits in the short term.
There is nothing to fear
For long-term investors hunting for reliable income, Lloyds remains a fundamental stock to consider for any investment style. The recent decline, while alarming, does not sound long-term. It’s like a delayed correction after such a long rally over the past few years – especially given the confidence of both management and analysts.
Overall, I still expect moderate growth and incremental earnings in the coming years. But for those who are not comfortable with the risk of the UK banking sector, I have recently put together some reliable income stocks in the retail and utilities sectors.
