Shares in Lloyds (LSE: LLOY) have put in a solid performance of late. Over the past 12 months, the Lloyds share price is up 50%.
Even after that increase, I would still buy Lloyds shares for my portfolio. Here are three reasons why – and one risk I see.
Leading high street position
Lloyds itself has a well-known brand name and iconic black horse logo. Not only that, the group owns other banking brands with regional strength, such as Halifax and Bank of Scotland.
That means that the company is well-positioned to keep attracting new business long into the future. With a large branch network, growing online presence, and market leading position in mortgage lending, I see Lloyds’ prominence in customers’ minds as an asset. It should help the company continue to generate substantial revenues and profits in future.
Clear strategic focus
Banking, when performed efficiently and cautiously, can be highly profitable. History shows that many banks stumble by getting involved in exotic markets or costly investments without properly assessing the risk. That is what caused the last financial crisis – but it’s also what caused many bank failures across the preceding centuries.
Lloyds has a very clear strategy. I think that could help bolster the Lloyds share price. It is squarely focussed on its home market. It is also specialised in retail and commercial banking. So, for example, it doesn’t have the investment banking exposure of rival Barclays, or the global presence of UK-listed banks like HSBC and Standard Chartered.
That risks lower profits when other markets outperform the UK, for example. But it also cuts risk in my view, by making the whole business easier to understand and manage. On top of that, it makes sense to focus on UK banking as a way to capitalise on its strong position in this market.
Dividend impact on the Lloyds share price
The company has restored its dividend. While it is still constrained by its regulator as to how much it can pay, Lloyds is currently paying out the maximum it can. It has also indicated it plans to return to a progressive dividend policy.
Meanwhile, the company’s CET liquidity ratio at 16.7% is well ahead of its target of around 12.5%. In layman’s terms, that means the cash pile it could use to help fund future dividends has been growing.
As the dividend grows, I expect that to help boost the Lloyds share price. So I would still buy the bank’s shares today, both for income and growth potential.
Lloyds share price risk
However, all shares carry risks and this is true of Lloyds.
For example, the heavy exposure to the UK housing market may be positive right now. But in the event of a housing market downturn, it could leave the bank nursing heavy provisions for bad loans. That could damage both revenues and profits.
My next move
I already hold Lloyds in my portfolio. But I continue to see it as an attractive investment opportunity at the current price. I would consider adding more Lloyds shares to my holding.
