Up 80% on a P/E of 15 and a 4% yield – can Lloyds share value again in 2026?

I Lloyds (LSE: LLOY) share price has had a big roar in 2025. It rose 80% within a year, and is now up 175% in five years. As another FTSE 100 in banking, it has finally escaped the shadow of the financial crisis, and loyal investors are reaping the benefits. What does the next 12 months hold?

Lloyds has relaunched its mantle as a dividend income stock. However, here the trail is bumpier. During the crisis it reduced the payout to shareholders twice, by 65% ​​in 2019 and 50% in 2020. The 250% increase in 2021 pleased investors, and they have continued to rise well, as my table shows.

The trailing yield fell to a modest 3.2%, just above the FTSE 100 average, but that was down to rising share prices rather than any slack in shareholder benefits.

FTSE 100 firepower

I expect the dividend to increase by about 15% this year, and the forecasted yield for 2026 is 4.2%. Shock aside, Lloyds looks great anyway.

As always when stocks go on strong like this, the big question is whether they can continue. Lloyds is not as cheap as it used to be

When I added the bank to my SIPP in 2023, it looked ridiculously cheap. The price-to-earnings ratio rose to around 6, below the fair value of 16, while the price-to-book ratio was just 0.4.

It’s a different story today, with a P/E of around 17.5, all though it drops to 11.6 based on earnings. IP/B is significantly higher at about 1.2.

If Lloyds’ share price recovery has caught investors off guard, it won’t be in 2026. The holding process is now complete. New investors must lower their expectations.

Dividend income and buybacks

Interest rates fall, which will reach interest rates and squeeze bank profits. Lower rates may re-energize the UK’s sluggish economy, and boost mortgage lending, but they still pose a challenge.

Anyone considering Lloyds today must take a long-term view. It’s unlikely that the lights will go out again this year, but with luck, it will gradually grow on top of its dominance in real estate and banking, to generate steady, steadily increasing profits over time. As always, there are potential shocks. Stocks will not escape the impact of a stock market crash, for example. But if we get one, and Lloyds collapses, it will be at the top of my shopping list.

I wouldn’t dream of selling my Lloyds shares today. Fortunately, I will hold them for a lifetime. I reinvest all the profits I receive, and celebrate each share purchase, while building my retirement stake. Sometimes, I will take my dividends as income.

So while Lloyds isn’t the premium it used to be, I still think it’s still worth considering as part of a Stocks and Shares ISA or limited SIPP portfolio. But I will also follow the FTSE 100 to find the next big recovery stock, I see a lot of opportunities out there.