LLoyds Banking Group (LSE:LLOY) shares have had an excellent run lately, climbing almost 14% in the past 30 days. Not bad for a bank that spent much of the first half of 2026 flip-flopping between 90p and 100p.
With the share price now near an 18-year high, many investors may be wondering if they missed the boat. But zoom out and Lloyds is still miles from revisiting its all-time high of over 500p.
Still, we can’t equate today’s responsible market with that of the wild days before the 2008 financial crisis. With tighter regulations and stricter oversight, it’s unlikely we’ll see levels like that again any time soon.
So is Lloyds on the brink of an overvaluation-driven correction – or is a longer, drawn out rally just getting started?
The bears are getting restless
After the recent rally, some coverage now describes Lloyds as overvalued — or at least stretched relative to fair value estimates.
In these situations, the market often starts demanding near-perfect execution, which makes the share price more vulnerable to any disappointment on margins, provisions, or capital returns.
The ongoing motor-finance scandal remains the bank’s biggest challenge, because it impacts investor enthusiasm even when the underlying business is performing well.
A portion of the FCA’s proposed £9.1bn redress scheme has been partially suspended while legal challenges are heard. Sources suggest we may not know the final outcome until next year, or even 2028 in a worst-case scenario.
That’s a concern for investors like myself who are holding the stock for income. I’ve been enjoying the annual 15% dividend hikes – will they continue if Lloyds has to keep excess cash in reserve?
The dividend outlook remains strong but it’s not immune to this risk. If the final bill exceeds expectations, the money will need to come from somewhere. That could mean a dividend cut.
At the same time, if the court rules it below what Lloyds has already put aside, it would have surplus cash to reward shareholders.
Why I still see a bull case
I’m still cautiously bullish, and not without reason. Lloyds is still producing solid shareholder returns, and some analysts think earnings and dividends can keep rising as the business benefits from strong domestic banking exposure and buybacks.
A few major brokers share my view, with the average 12-month price target around 123.7p – around 10% higher than today’s price.
| Broker | Rating | Price target | Date |
|---|---|---|---|
| Goldman Sachs | Reiterated Buy | 126p | 7 July |
| Bank of America | Reiterated Hold | 130p | 2 July |
| Morgan Stanley | Reiterated Buy | 135p | 30 June |
In my opinion, a short-term correction is certainly possible — but it’s unlikely to indicate any serious structural issues.
The price-to-earnings (P/E) ratio of 16.5 doesn’t scream cheap but it’s not bloated either. If the motor-finance redress is settled without any hiccups and results continue to impress, I see no reason for an extended downturn.
My final thoughts
For a UK income investor, Lloyds still looks like a quality FTSE 100 bank with decent yield and strong shareholder returns. But the easy gains may already be behind it.
The shares now seem more sensitive to regulatory headlines and results-day guidance than to the core banking story alone. Long term, I’m not worried. But for a high-yielding opportunity today, I think there are other, better options to consider.
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Mark Hartley owns shares in Lloyds Banking Group.
