Lloyds (LSE: LLOY) (NYSE: LYG.US) could be a big beneficiary if Labour win the 2015 general election.
The reason for this is that Ed Miliband, the Labour party leader, stated at the recent party conference that his aim is to build 200,000 new homes per year in the UK. This would be double the current figure and the target would be to reach this level by the final year of the next Parliament in 2020.
Indeed, if this were to be achieved under a Labour government, it would be great news for Lloyds as, put simply, there would be greater demand for mortgages as the number of homes increased. More mortgages mean more fees and more lending for Lloyds.
However, this is not the only reason why I’m thinking of adding to my stake in Lloyds, with the following three reasons being key factors, too.
Firstly, Lloyds is on the road to recovery, as highlighted by the beginning of the end of its period of nationalisation. Certainly, there is some way to go, with the bank still set to dispose of more non-core assets in the coming months. However, the strategy employed and the results it has yielded show that Lloyds is a relatively healthy bank once more and that it is well positioned to deliver earnings growth in future years.
Secondly, Lloyds is relatively cheap, with its shares trading on a forward price to earnings (P/E) ratio of just 11.3 when looking at 2014 earnings per share. This compares favourably to the FTSE 100 and to the wider banking sector. They trade on P/Es of 14.9 and 16.3 respectively, which shows that Lloyds comes at a healthy discount to its sector and to the wider market.
Thirdly, Lloyds should, in my view, be on the ‘buy’ lists of income-seeking investors. Indeed, the company recently stated its aim to pay out up to 70% of earnings as dividends by 2016, which would put shares on a yield of around 7% at current prices.
Clearly, 2016 is a long way off, but a generous payout ratio should mean that Lloyds eventually becomes a mainstay of income-seeking investors.
So, I’m bullish on Lloyds because I feel it is well positioned to take advantage of any increase in the number of homes built in the UK, as well as the fact that it is on the road to recovery, trades at a discount to peers and has the potential to become a great income stock.
