The Motley Fool

Lloyds Banking Group plc: an unloved 6% yielder that could make you very rich

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.

According to top investors such as Warren Buffett and Charlie Munger, great investment opportunities do not come along all that often. Therefore, when they do, they say it is important to grasp them.

With this in mind, Lloyds (LSE: LLOY) could be a rare opportunity for value and income investors. Despite having a relatively low valuation and high yield, there seems to be limited interest in its future. This could make it a star investment for the long term, and one which is worth pursuing at the present time.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Relative focus

Perhaps what makes the company’s current valuation and yield so surprising is the current state of play of the UK stock market. The FTSE 100 is trading at a record high, which means that many of its constituents have high valuations which lack a wide margin of safety. In contrast, Lloyds has a price-to-earnings (P/E) ratio of 8.9 using 2017’s forecast earnings figure. This suggests that it has a wide margin of safety and may deliver higher capital growth levels than many of its index peers.

Similarly, at a time when inflation is on the rise, the company has a relatively high dividend yield. Using next year’s forecast dividends-per-share figure, it trades on a dividend yield of 6.6%. Since shareholder payouts are expected to be covered 1.6 times by profit, there could be scope for them to grow in future. This could help investors to beat 3%-plus inflation in the long run.

Looking ahead

Of course, one of the risks associated with the bank is the outlook for the UK economy. Although GDP growth and employment figures have held up reasonably well in recent months, there is still a good chance of a ‘no deal’ scenario being realised with regard to Brexit talks. In such a scenario, UK-focused companies such as Lloyds could suffer significantly from a possible deterioration in the performance of the economy, as well as a decline in investor sentiment.

While Lloyds lacks the international diversification of some of its sector peers, it appears to have a sufficiently wide margin of safety to make up for its concentrated business focus. Furthermore, while a number of its sector peers are seeking to reduce costs and become more efficient, it has already achieved major progress in this area. This may provide it with an opportunity to focus to a greater extent on growth, rather than legacy issues or cost reduction. Evidence of this can be seen in its recent £1.9bn acquisition of the MBNA credit card business.

Takeaway

Clearly, Lloyds faces an uncertain period over the medium term. The UK economic outlook remains challenging, and this could cause investor sentiment to remain downbeat. However, with an improved outlook, low valuation and highly sustainable dividend yield it could be a stunning investment opportunity for the long term.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Peter Stephens owns shares in Lloyds. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.