Lloyds Banking Group (LSE: LLOY) is the UK’s most traded stock, but that is bad news for private investors because recent performance has been hopeless. That doesn’t worry me — quite the reverse. In fact, this is one of the reasons I put my neck on the line and tipped Lloyds as my top FTSE 100 play for 2016.

The 100 club

Membership of the so-called Lloyds 100 Club — fans betting on the share price hitting 100p — has dwindled, with the share price dropping 25% to 63p in the last six months. It continues to fall, down 12% over the last month and 2% this week, and every time it does, I reckon the ‘buy’ case gets even stronger.

It’s a Foolish thing. Some of us here are so keen on picking up top stocks at bargain prices that we cheer in a rather unseemly fashion every time one of our favourites takes a tumble. 

Cash cow

Happily, I am not the only one touting Lloyds right now. Investment bank UBS has just given global banks a reality check, warning that cheap oil and black central bank policy will punish earnings, but it picked out Lloyds for praise (along with Royal Bank of Scotland Group). UBS admires Lloyds as a capital-generative business that should return more than half its market cap in dividends and buybacks over the next five years.

Profits will also be boosted by accelerated bank branch closures, which attracts angry headlines and hurts older customers, but is an unstoppable force as more customers bank online and footfall drops by 10% a year. The big boys have no choice but to cut costs if they are to compete with UK challenger banks. Lloyds has already set its stall out, with plans to focus on digital operations, rather than physical floorspace.

Growth grumbles

Not everybody shares my liking for Lloyds. HSBC has just slashed its target price from 103p to 80p (although that still leaves 27% upside from here). I can understand why, as UK interest rates aren’t going anywhere, making it harder for Lloyds to boost net interest margins. I am also watching the UK economy warily, as the Bank of England downgrades growth expectations. Wages are now growing at their slowest pace since 2013, and that could hurt Lloyds, which is largely a domestic operation these days.

These concerns are largely reflected in today’s low price. The drop has scuppered Chancellor George Osborne’s public flotation plans, as he needs a price of 73.6p to break even, but that doesn’t make any difference to you. Osborne is offering a 5% discount to retail investors — whoopee! — but frankly, with the stock discounted a massive 30% from its 52-week high of 89p, who cares about that? Waiting for the flotation makes no sense as the share price has to rise at least 17% before you can claim your 5% discount.

Lloyds may fall further, but with the shares now trading on a bargain price 7.7 times earnings, and with a forecast yield of 5.1% for December, you really can’t gripe about today’s price. Yes, it may fall further, but there is a strong case for locking into that future income stream sooner rather than later.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.