Why I’m Bullish On Lloyds Banking Group PLC

A recent data release has made me more optimistic about prospects for Lloyds Banking Group PLC (LON: LLOY).

| 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.

Like it or not, the fortunes of the UK economy are closely tied to the performance of the housing market.

When house prices go up, people feel richer and spend a little bit more. Similarly, when house prices fall, people feel poorer and hold off on buying, for instance, a new car or new sofa.

This fact doesn’t always make sense to me. Certainly, if the value of your house has gone up then, in theory, you are richer because you have a larger amount of equity. However, on a relative basis you are no better off.

In other words, if you were to sell your house and move to another one, you would not be able to buy a significantly better house in a substantially better area because the prices of those houses would also have gone up, making you no better off.

Whether I understand it or not, it doesn’t matter. House price increases are good for the UK economy.

So, I was encouraged by recent data showing that mortgage lending surged to its highest level in over five years.

Indeed, the Council of Mortgage Lenders, a trade body, said that gross mortgage lending increased to £16.6 billion in July. This is an increase of around 12% since June and is the highest figure since October 2008. Furthermore, it is 25% higher than was forecast for July.

Of course, lending still remains below its pre-credit crunch level, but the news is nonetheless very encouraging. Increased lending means increased demand for property, causing house prices to (in theory) head northwards.

One stock through which I hope to benefit from any upturn in the housing market is Lloyds (LSE: LLOY) (NYSE: LYG.US), which has vast swathes of UK mortgages from when it was apparently forced to acquire HBOS in 2008. This has undoubtedly held back shares in recent years, as market sentiment was poor and the company was trying to begin the long process of turning itself around.

However, with the comeback now on, I believe that Lloyds is an attractive investment. Not only is it on the verge of returning to profitability (according to forecasts) but it is aiming to pay out up to 70% of earnings as dividends within three years. For income-seeking investors like me, this could prove to be a real boost to my portfolio, with inflation being a concern and low bank savings rates causing me a headache.

Of course, you may already hold Lloyds or be looking for other potential yield plays. If you are, I would recommend you take a look at this exclusive report that details The Motley Fool’s Top Income Share.

It is completely free and without obligation to view the report and it could be just what your portfolio needs. Click here to take a look.

> Peter owns shares in Lloyds.

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.

More on Investing Articles

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Nvidia shares hit a new high after record earnings. Is there a lot more to come?

Nvidia stock smashes expectations, as quarterly profit soars 600%. It's time for a 10-for-one stock split too, as it reaches…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Scottish Mortgage shares rise following FY update! Time to buy?

Scottish Mortgage (LON:SMT) shares were closing in on 900p today after a positive full-year report from the giant FTSE 100…

Read more »

British Isles on nautical map
Investing For Beginners

It’s time! Here’s my FTSE 100 hit list for the general election

Jon Smith outlines the potential reaction for the FTSE 100 from the upcoming general election and the main stocks he's…

Read more »

Investing Articles

National Grid reveals £7bn rights issue and the share price plunges – should I invest now?

The National Grid share price has dropped almost 10% and a dividend cut is looming, but it may be a…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Nvidia stock is becoming more affordable!

Nvidia stock is up 2,500% over five years, but the chip giant’s share split -- announced during its earnings report…

Read more »

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »