As a Lloyds Banking Group (LSE: LLOY) shareholder, a bullish August has been my hope for some months. First-half results from the big banks were due in the last week of July, and they look good. But the immediate market reaction was unexciting, with the Lloyds share price dropping on results day.
At 46.1p as I write, the shares are still a fraction down. And that’s even though Lloyds showed a £2bn pre-tax profit in the half, and “reintroduced a progressive and sustainable ordinary dividend policy, with an interim ordinary dividend of 0.67p per share.” Oh, and it lifted its full-year guidance too.
Financial sector dividends were suspended at the behest of the PRA when Covid-19 hit. But Lloyds’ balance sheet and liquidity have come through strongly. And the bank has been clear all along that it has been accumulating cash with a view to making returns to shareholders as and when practical. That knowledge has been enough to keep me on board. But I’d assumed a lot of investors were waiting for it to actually happen.
So why the disappointing Lloyds share price response now? I must stress that I don’t really care too much about such a short-term horizon. It’s really not possible to predict with any kind of accuracy. But watching what happens in the next month or two might give us some idea where sentiment is going. And sentiment has surely got to turn positive at some point, hasn’t it?
Sector-wide malaise
The poor reaction is not restricted to Lloyds. Barclays and NatWest shares have also responded weakly to H1 results. And the same seems to be happening to HSBC now. H1 profit soaring, interim dividend reinstated, and the share price barely moving.
One thought is that investors are simply being cautious in the face of economic uncertainty, waiting to see how things pan out in the longer term. That would be a surprising move for some of the big institutional investors, who rarely seem to look beyond the next quarter. Then again, maybe after several years of disappointing quarters, they want to see share prices rising first.
Or then, I might have judged Lloyds badly as an investment. And with the uncertainties the UK faces in the coming years, I can’t rule out the possibility of a further prolonged poor stock performance.
Give up on the Lloyds share price?
As a perpetual Lloyds share price watcher, I’m always banging on about how the long term is all that counts. But I’ve been saying that for years. So is it time to give up on my hopes and sell? I don’t think so. It sometimes really can take a long time for an undervalued stock to recover. And a sector can face a series of unpredictable setbacks beyond its control.
My main reason for holding is that I bought for the dividends. And even with the relatively short pandemic exception, Lloyds has been delivering on those.
If Covid progress continues and economic news starts to look up, I think we might even see a delayed restart for the Lloyds share price to climb in August.
