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Lloyds (LSE:LLOY) shares have delivered an impressive 44% return over the past 12 months. That means a £10,000 investment made this time last year would now be worth £14,400, even before factoring in dividends.
So what’s been happening and will it continue?
Near-perfect conditions
Much of this performance has been driven by a favourable macroeconomic backdrop. Elevated interest rates throughout the period allowed Lloyds to expand its net interest margin — the difference between what it earns on lending and pays on deposits.
In the first half of 2025, the bank reported £6.5bn in net interest income, a 5% year-on-year increase. While pressure may build on margins as rate cuts come into view, the current environment continues to support healthy earnings.
Lloyds’ domestic focus has also worked in its favour. The UK economy’s unexciting but relatively resilient, with modest GDP growth and gradually improving credit conditions. That’s helped boost sentiment around UK-centric lenders, particularly as Lloyds maintained strong asset quality across both retail and commercial lending.
Another major catalyst was the resolution of legal uncertainty tied to motor finance mis-selling claims. A Supreme Court ruling in favour of lenders significantly reduced the risk of a multibillion-pound compensation bill.
While the Financial Conduct Authority’s final stance remains to be seen, analysts widely expect a far more balanced approach than previously feared. The removal of this legal overhang has been a critical turning point for the share price.
Momentum continues
Momentum has played a role too. Lloyds broke through key resistance levels earlier in the year — these are technical indicators based on where the share price typically finds support and resistance to further upward movement — which fuelled further buying interest and attracted positive analyst attention.
Despite the rally, the stock continues to offer a forward dividend yield of around 4.3%, with payouts well covered by earnings — a feature that remains attractive to long-term income investors. The dividend yield’s expected to rise to 4.9% and 5.7% in 2026 and 2027 respectively.
Of course, there are still risks. Some argue that the current valuation already reflects much of the good news. A deterioration in the UK economy or a rise in defaults could weigh on profitability. Even so, with legal risks fading, returns improving, and the macro outlook relatively stable, Lloyds appears better positioned than it has in years.
Personally, I still believe Lloyds along with its peers, which are roughly trading with similar valuation metrics, offer good long-term value. Lloyds is currently trading at 12 times forward earnings, but this falls to nine times in 2026 and then 7.5 times in 2027.
While that might sound expensive for a UK bank, when factoring in the dividend yield, it’s still below the US and global financial sector average. I’m not adding to my holdings due to concentration risk, but I do believe the stock’s worth considering.
