Lloyds share price: 3 reasons I’d buy today

The Lloyds share price has soared by 50% in 12 months. Even after this recovery, I still see deep value in LLOY, waiting to be released after Covid-19.

| 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.

Lloyds Banking Group (LSE: LLOY) is one of the most widely held UK shares. Popular among private investors as well as its employees, Lloyds has hundreds of thousands of individual shareholders. Thus, LLOY is one of the most popular tickers in UK searches. That said, the Lloyds share price has had a tough five years, putting shareholders through the wringer.

The share price slumps and soars

At its five-year high in May 2017, the Lloyds share price was nearing 72p. After several years of lacklustre performance, the shares closed out 2019 at 62.5p. However, as Covid-19 infections spread in early 2020, Lloyds stock crashed. Unlike many other FTSE 100 shares, Lloyds didn’t hit rock-bottom on ‘Meltdown Monday’ (23 March 2020). Instead, the shares collapsed to a low of 23.58p on 22 September 2020.

Just two days later, I wrote, “I see a lifetime of value in Lloyds“, with the Lloyds share price at 24.58p. As I write, the shares hover around 47.41p. That’s an increase of almost 23p per share, meaning that the stock has almost doubled (+92.9%) in just over nine months. Despite this turnaround, I still like the stock. Here are three reasons why.

Why I still like Lloyds

My first reason for buying at the current Lloyds share price is its decline from recent highs. On 1 June, the stock hit a 2021 high of 50.56p. Since then, it has declined by more than 3p, leaving it 6.2% off its 52-week peak. As a veteran value investor, I relish buying shares when they show weakness. But I do so only if the underlying business case is still solid. For Lloyds, I think nothing much has changed since May.

Second, after cancelling its cash dividend in 2020, Lloyds has now restored it, albeit at a much lower level. Lloyds paid a final dividend for 2020 of 0.57p a share on 25 May. An interim dividend for 2021 should be announced with the bank’s half-year results on 29 July, to be paid in late September. As an investor keen on accruing passive income, I hope to see steady (or even steep) rises in this payout as Lloyds returns to post-pandemic health.

Third, and most important, this stock still looks cheap to me at the current Lloyds share price. Granted, the bank’s earnings are depressed right now, but are expected to rebound in 2021/22. On a forward basis, a forecast price-to-earnings ratio of eight gives a chunky earnings yield of 12.5%. Such a bumper earnings yield could support a dividend yield of 6.25% a year, twice over. Also, Lloyds has a rock-solid balance sheet and is valued at a steep discount to its underlying assets. Again, these are indicators of deep value among stock-pickers.

Beware of Covid-19 setbacks

Finally, although I’m currently bullish (positive) for Lloyds’ future, that might change suddenly. As with all banks, Lloyds is very cyclical (geared to the economic cycle). Right now, economists expect a multi-year boom in the UK and global economies. Alas, if new and more deadly variants of Covid-19 emerge, then this might blow up these predictions. Indeed, the threat of further UK lockdowns could send the Lloyds share price spiralling downwards again. In summary, I don’t own Lloyds shares today but, on balance, I’d buy and hold at current levels.

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.

Cliffdarcy does not own shares in Lloyds Banking Group. 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.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »