Should I buy the Lloyds Bank share after its 30% price increase?

Is the Lloyds Bank share price rise a reason to consider buying the stock after it has been in the doldrums for much of 2020?

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Lloyds Bank (LSE: LLOY) has made sharp gains in the past few months. On average, the Lloyds Bank share price is up more than 30% since October. It’s also among the biggest FTSE 100 gainers today, indicating that the worst may be over for the long-languishing financial services stock. 

Three reasons the LLOY share price can rise

I think there are also plenty of reasons why its share price can rise in the foreseeable future. 

For one, there’s now light at the end of the Covid-19 tunnel. Investors are bullish now it’s widely believed that it’s only a matter of time before life goes back to normal. In fact, the wider stock market rally alone can continue to drive up share prices of individual stocks like LLOY. 

Two, the Lloyds Bank, like other FTSE 100 counterparts, can start paying dividends now. And they are unlikely to face disruption again. The Bank of England has just said that barring banks from dividend payouts last year was a particular situation. Income investors can be encouraged by this.

Three, the bank’s prospects look good too. According to The Financial Times, analysts expect improvement in LLOY’s financials. On average, they also expect the share price to rise slightly from its current levels. Going by the fact that its share price is still much lower than pre-crisis levels, I think there’s even more reason to believe that the upturn will continue. 

Two reasons to be cautious

But there are also reasons for caution. I had detailed some of them in my article on LLOY last week. Risks from the national lockdown and Brexit are high, in my view. They can diminish the economic outlook and, relatedly, the bank’s prospects for 2021. 

Also, its long-term share price history inspires little confidence. If it were more obvious that things would improve in 2021, I could feel confident about the Lloyds Bank share. But not right now. 

What I’d do next

So what wins on balance? The bulls or the bears?

There’s no denying that LLOY is a very popular stock among investors. I think long-term income investors, who are focused only on the income aspect of the stock, might be one set that find it attractive. Those who buy now will probably get a higher dividend yield from an investment in LLOY, as the price will quite likely rise at least a bit when dividends kick in.

I’m not that investor, however. I do like both capital growth and income and in that department the Lloyds Bank share leaves me wanting. Many other FTSE 100 stocks offer the option of both growth and income. One example is the utility provider Severn Trent, which I wrote about in some detail yesterday. 

Besides, right now, I don’t even know the dividend amount LLOY will finally decide on and whether it will be competitive. I’ll wait at least until the lockdown lifts to get a clearer understanding of the economic environment before I consider buying the Lloyds bank share. 

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.

Manika Premsingh has no position in any of the shares mentioned. 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.

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