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Why I am buying Lloyds shares now

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A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

The last week has seen an increase in the Lloyds (LSE: LLOY) share price amid the release of its Q1 results. The statement was filled with positive signs, which has led to many investors pouncing at the opportunity of capitalising on a discounted price (at the time of writing around 45p) compared to pre-Covid times. The shares have been steadily increasing in price since a 52-week low back in September of last year, and here I will explain why I am adding Lloyds to my portfolio.  

Q1 announcement provides hope

The main item to take away from the recent announcement was that profits after tax had reached close to £1.4bn – nearly three times the figure for the same period last year (£480m). This shows Lloyds is slowly but surely recovering from the initial slump of March last year. From a shareholder perspective, this equates to 1.3p more earnings per share this quarter – a good reason to make me want to add Lloyds to my portfolio.

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Another reason for the increase in investor confidence was the return of loan provisions that the bank is due to receive. This equated to £323m (compared to a £1.4bn charge for the same period last year), which puts Lloyds in a solid position heading into Q2 and the rest of the year, leaving it with additional capital to utilise. The final positive was the reduction of total costs to £1.9bn as part of a continued operating cost-control operation across the business.

Not all positive news for Lloyds shares

With this said, I must be cautious about its position when looking at the future. The bank’s close-knit relationship to the UK economy can bode both opportunities and threats. Although Lloyds’ bold prediction of growth in the UK economy over 2021 and 2022 would seem to put it in good stead, the economy has taken a major hit – as we have so clearly seen over the past 12 months – and is far from recovering. This means something such as a delay in our roadmap out, set by the government, could cause the share price to plummet back down from its current levels.

As well as this, was it inevitable that results this quarter would be an improvement on those of last quarter at the outbreak of the pandemic? One could argue that the loan provisions have stolen the spotlight in covering up what many could call an expected improvement. Potential regulation on dividends may also provide instability for future investors.

Light at the end of the tunnel?

With the Prime Minister’s recent reiteration that the UK is on track to be completely free of coronavirus regulations come 21st June, there seems to be real optimism among investors for Q2 and the rest of this year ahead. Lloyds itself predicted growth in the UK economy in itsreport, and as such I believe now would be a good time to buy shares before we potentially begin to see some of the highs that we have with this stock over the past few years.

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Charlie Keough does not own 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.

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