Why Lloyds Banking Is Up 55% This Year

Came on board (in ISA) in December - so up 66% - about 4.6% of total ISA value. Having an interesting debate with myself - take some profits or hang in for the ride.....tempted to hang on in there.

C'mon baby.

Go on son.

(only another 75% and I'll break even)

The last 12 months have been a roller-coaster. The next jump will be when they return to dividend which now looks to be more of a political/FSA decision. LLoyds have great brands, a great network, pre-HBOS an impeccable record, strong core profits and a great UK market position. They have driven through substantial cost restructuring and made massive write downs and provisions. As HousingBear999 says Halifax have a large housing exposure but with the money been pumped into housing my thoughts are that housing, which has been remarkably resilient, will see a low growth rate and with rising incomes and employment downside risk is falling. A greater risk I think is the impact of RDR on St James Place but this is a smallish part of Lloyds.

At a 5p dividend then you would probably see a share price of around £1.20 - £1.40 so the current 40p price tag looks good. In addition at some point many of the larger funds which jettisoned banks will need to re-stock their portfolios. I have been buying steadily for 16 months in a range of around 22p to 40p and I am considering buying more. I figure if I can get my shareholding to 100,000 shares and they return to say a 20p dividend then it is a very nice part of my retirement fund for a relatively small investment.

spyknife: Back in 2008 when Lloyds shares were around £5 I suspect people would have said 21p a share was ridiculous. If you look historically at the profit flow of Lloyds and HBOS then consider the cost reduction programmes then the core profits of £6bn look like a low point to build from. The market seems to accept a 3% - 5% return from major banks as a reasonable return in current markets so a 5p dividend would suggest £1+ is perfectly possible. Of course this will take time but I suspect not that much time, the number of shares in issue is an irrelevance to the overall market cap.

Banks and governments are still finding their way in establishing acceptable profit models for banking but what is absolutely apparent is that without finding that model the economy will not properly recover as credit will remain crunched (take a look at the vast cash balances held by banks, from memory I think Lloyds has gone from £6bn to £46bn in 4 years).

Anyone who just a few months back bought at 21p is now looking at 40p, I certainly think Lloyds is a share worth looking at as a contrarian play.