Lloyds Banking Group shares: bull vs bear

Bullish: Alan Oscroft

Why am I bullish about Lloyds Banking Group (LSE:LLOY) shares, after seeing them tumble since I bought back in 2015? It’s all about the income for me, and I see enough indications of progressive dividend growth in the coming years.

The interim dividend was restored this year, and I think we could easily be back to yields above 4% before much longer.

Will the cash be there to drive that dividend growth? Lloyds is the UK’s biggest mortgage lender, and I’m seeing no signs of house sales cooling. At least, the nation’s housebuilders are reporting strong demand and healthy order books.

Times of low interest rates are not good for banks, but they won’t be here forever. We’re already seeing inflation coming back, with the annual rate leaping to 3.2% in August. If there’s much more of that, those rates could soon rise.

Lloyds has generated some uncertainty with its foray into the rental homes business. Its venture with Barratt Developments plans to build 50,000 rental properties over the next 10 years. And that’s really not the kind of thing that conservative financial sector investors expect banks to be doing.

But I’ve been optimistic about the long-term future of the housing market for a long time. And I don’t see anything to change that view — certainly not the short-term pandemic slowdown.

I have a number of real estate investment trusts on my Stocks and Shares ISA watchlist. But now I already have one, sort of.

And when the market is at its most bearish towards a sector, that’s the time to buy, right?

Alan Oscroft owns shares of Lloyds Banking Group.

Bearish: Royston Wild

I’m not surprised to see the Lloyds share price trending lower again. In fact I think the FTSE 100 bank could have a lot further to fall if (as I suspect) the UK economy shows signs of fresh struggle, raising the prospect of renewed revenues weakness and a rise in bad loans at Britain’s banks.

Latest data showed the domestic economy grow just 0.1% in July, the weakest result since January and leaving the UK economy 2.1% below pre-pandemic levels. Back then, supply shortages and the ‘pingdemic’ held back growth. These remain significant dangers to cyclical shares like Lloyds as new Brexit customs arrangements gradually come into force and Covid-19 infection rates continue to tick up. 

Lloyds also faces the prospect that interest rates will remain low for a long time, further constraining the profits it can make through lending. The Bank of England is tipped to lift its benchmark rate by the end of 2022 at the latest. But of course the timing and the scale of such raises could be disappointing for the likes of Lloyds if the economic recovery does indeed hit the buffers. 

I don’t think that Lloyds is a particularly attractive UK share on a long-term basis, either. Banks like HSBC and Santander for example can look to fast-growing emerging economies to drive the bottom line. Conversely, Lloyds has no such exposure to overseas markets to give profits an extra kick. Nor does it have investment banking operations like Barclays with which to boost earnings. I believe the FTSE 100 bank could deliver consistently-weak profits growth long into the future.