2024 has been a good year to own Lloyds (LSE:LLOY) shares. The bank hasn’t exactly been a stellar performer over the last decade, as near-zero-percent interest rates have made profitability a challenge. But today, the economic landscape is very different. And while higher rates have resulted in some loan losses for the company, overall, this has proven to be a net positive sending profits through the roof.

The effects of this are clearly reflected in the stock price. Since the start of 2024, the shares are up 17%. And zooming out to a full 12 months reveals an even better return of almost 26%. Pairing these capital gains with a chunky 5% dividend yield has turned the enterprise into a market-beating investment.

Calculating profit

At the start of the year, Lloyds shares stood at 48p. Therefore, a £1,000 investment would have bought 2,083 shares, ignoring transaction fees. Today, the stock trades at roughly 56.1p, giving us a 16.9% capital return, or £169. But the bank also paid a 1.84p dividend per share in April this year. And when multiplied by the 2,083 shares owned, this translates into an extra dividend return of £38.30.

Therefore, in total, for every £1,000 invested since the start of 2024, investors are now sitting on £1,207.30 – a 20.7% gain. By comparison, the FTSE 100, while also ahead of its average performance, has only achieved a 10.45% total return this year. In other words, Lloyds shares have outperformed the market by almost double.

Will Lloyds shares rise further?

Wider margins and improved profitability are just two of several important factors driving the stock’s impressive performance year to date. However, whether this upward trajectory will continue moving forward is a bit of a question mark.

Higher interest rates have been enormously beneficial. But with inflation almost below the Bank of England’s 2% target, it may not be long before cuts start to emerge. When that happens, the bank’s net interest margin is likely to come under pressure.

Meanwhile, the Financial Conduct Authority’s (FCA) regulatory probe into the bank’s historical car financing commission arrangements looks like it’s going to do some damage. Management has put aside £450m to settle claims made against the firm. And while this is going on, the bank’s deposits have actually fallen by £4bn as customers seek better interest rates from rival banks and financial platforms.

By themselves, not one of these problems appears to be a ticking time bomb. Lloyds has approximately £450bn worth of issued loans, only £15bn of which is related to car finance. At the same time, total deposits, while down, still stand at £471bn. But when combined, the challenges and threats this business now faces, create uncertainty.

Needless to say, uncertainty doesn’t exactly brew excitement. And should investor sentiment fall off, the momentum behind Lloyds’ shares will likely follow. And at a price-to-earnings (P/E) ratio of 7.4 versus analyst consensus of 6.6, the stock might already be fully valued.