Here’s why you’d be mad to sell Lloyds Banking Group plc!

Shares in Lloyds Banking Group plc (LON: LLOY) could be about to storm ahead.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the difficulties of being an investor is that share prices don’t always move in the right direction. In other words, profits aren’t smooth and steady, but rather come and go – often in a relatively short space of time. This can leave many investors feeling down about their portfolios and cause some to sell up and walk away, which is how many investors in Lloyds (LSE: LLOY) may be feeling right now. That’s because its shares have fallen by 12% in the last year and are showing little sign of a sustained recovery — especially following last week’s disappointing first quarter results.

However, when a company’s share price moves lower, it can signal a further buying opportunity rather than a moment to sell and reinvest elsewhere. That’s provided that the company in question is still offering a bright long-term future and isn’t a value trap that’s cheap for a very good reason. If it’s the former, buying a company with a depressed share price can lead to stunning gains.

This situation seems to be the one facing Lloyds at the moment. Despite its aforementioned share price fall, its prospects are still very bright. For example, it’s continuing to improve its balance sheet strength following a period of asset disposals. This leaves it not only better equipped to deal with a potential downturn, but has also caused Lloyds to become increasingly efficient – especially versus its sector peers. Therefore, it seems to be in a position through which to generate rapid profit growth in the long run.

Improving economy

In addition, Lloyds is likely to benefit from an improving UK and global economy. With it having a significant exposure to the UK housing market through its acquisition of HBOS during the credit crunch, Lloyds seems to be well-positioned to benefit from low UK interest rates that could boost the prospects for the UK property sector. And while the global economic outlook remains uncertain, growth rates are still relatively strong and the long-term outlook is positive due in part to the future prospects of the developing world.

As well as a bright future, Lloyds also seems to have a sound strategy that could cause investors to flock to its shares. Lloyds is in the process of gradually increasing its dividend payout ratio so that its yield is likely to rise over the medium term. In fact, Lloyds’ yield is expected to be as high as 7.5% in 2017 and this would put it towards the top of the FTSE 100 yield table. And with dividends still set to be covered 1.5 times, there’s scope for even greater increases in shareholder payouts over the medium term.

With Lloyds trading on a price-to-earnings (P/E) ratio of just 9, it seems to offer excellent value for money given its future prospects, income potential and strategy. So it could be argued that you would be mad to sell up even after the disappointment of the last year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Lloyds Banking Group. 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »