Lloyds (LSE:LLOY) shares have performed well for investors over the past 12 months, surging 34% at the time of writing.

But if I had held shares in the bank for the last five years, I’d have seen a measly 10.6% growth — just above 2.1% per annum.

Thankfully, there will have been dividends during that period.

So, if I had invested £1,000 in Lloyds shares five years ago, today I’d have £1,160 plus around £227 in dividends — that’s including the dividends I’m expecting to receive this year.

In other words, my total returns would be around 38%. That’s not too bad at all.

However, the important issue for investors is whether Lloyds would represent a good investment going forward.

Let’s take a look at some of the key points.

A bellwether for the UK economy

Lloyds is often considered an indicator for Britain’s economy due to its significant market share in retail and commercial banking.

As the country’s largest mortgage lender and a major provider of business loans, Lloyds’ performance closely mirrors the health of British households and businesses.

Moreover, the bank’s fortunes are particularly sensitive to interest rate movements. More so than many of its peers because it doesn’t have an investment arm. It’s just a lender.

In recent years, higher interest rates have allowed the bank to expand its net interest margin, but impairment charges — the cost of covering bad debt — has also risen.

However, as central bank rates fall, the net interest margin could remain elevated because of the bank’s hedging practices while impairment charges fall.

With this in mind, it could be a strong few years. However, Lloyds is sensitive to economic shocks like a rise in inflation or an economic slowdown. A tighter fiscal regime from the Labour government could also hurt demand for mortgages.

What do the forecasts say?

So, what’s happening with Lloyds’ earnings? Well, 2024 isn’t expected to be as profitable as 2023. In some respects, 2023 was a unique year that will be hard to replicate.

However, as indicated, there are clear supportive trends in the form of falling central bank rates and the unwinding of the structural hedge.

Based on the current projections for earnings, the bank is trading at 9.6 times forward earnings for 2024. This falls to 8.5 times for 2025 and then 6.8 times for 2026.

Meanwhile, the average share price target for Lloyds has pushed upwards to 62.7p — that’s 9% above the current share price.

There’s been a larger gap between the target and the price — at the start of the year, the alleged discount was around 40%.

And the dividends

Since the Brexit referendum, Lloyds, like many UK stocks, hasn’t performed overly well. However, the dividend has grown.

For context, over the past decade, Lloyds shares are down 22%, but the dividend is up around 20%. In turn, we’ve ended up with a substantial 5.3% forward dividend yield.

Dividend payments are expected to continue rising from 3.06p per share in 2024 to 3.25p in 2025, and 3.84p in 2026. In turn, this would give us a 6.7% dividend yield by 2026 — that’s very strong.