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Lloyds Banking Group (LSE:LLOY) enjoyed a great February. In fact, the Lloyds share price was one of the best-performing stocks in the entire FTSE 100, gaining 18.5%. Typically, with a move of this size in the space of just a few weeks, several reasons likely contributed. Here’s what happened and what it means for investors considering buying now.
Good 2024 results
A key factor was the release of the full-year results for 2024. Even though net income fell by 5% versus the prior year, pushing the statutory profit before tax down by 19%, investors positively took the overall report. To some extent, a fall in net interest income was to be expected, given the cuts made to the base interest rate during the calendar year.
Good progress was made on non-financial metrics, such as a 6% increase in the number of digitally active users, which now stands at 22.7m. This is good, as it’s a more efficient way for customers to operate and also cuts down on employee costs. The loan book grew by 3%, with the deposit book up by 2%. This shows that clients are active and engaging with the bank. It shows a healthy balance, as if loans were up significantly but deposits were falling, this would be a red flag.
Dividend prospects
Another reason for the pop in the stock was confirmation of an increased dividend payout and new share buyback programme. This signals confidence in future earnings and returns more capital to shareholders. Investors typically react positively to increased capital returns, and this scenario is no different.
Regarding the dividend, the 2024 total contributions (made up of two payments, 1.06p and 2.11p) was 3.17p. This contrasts with the total figure of 2p from 2021. The steady increase over the past few years makes it an attractive option for income investors. Given the updated news from February, I expect some of the share price increase came from dividend hunters buying.
Surprise UK data
Finally, the stock did well due to the broader UK economic outlook. Lloyds is a bellwether for the UK, given the large retail client base. Therefore, when GDP data showed modest (but unexpected) growth, people breathed a sigh of relief. Even though inflation is still rising, it’s not surging at a crazy pace, which again is somewhat comforting.
This improved sentiment was a factor in supporting the stock market overall, but the rising tide helped to lift Lloyds stock, too. However, when thinking about risks, this is one that I would flag. The UK economy is fragile. Even though data in February was OK, I’m not convinced that we’ll go through 2025 without some data scares around high inflation and weak consumer spending. The bank could be negatively impacted by this, due to the potential for higher loan defaults.
Based on the drivers behind the share price rally, I’m optimistic overall for Lloyds stock. It’s a share that I feel investors should consider.
