Lloyds (LSE: LLOY) shares are up from their market crash lows and are currently trading at around 46p. In fact, since the beginning of 2021, the stock price has risen over 30%. And it has also increased by more than 60% during the last 12 months.
But would I buy at the current price of 46p? Yes, and I think things are looking up for the bank. The landscape is improving compared to last year, which should help boost Lloyds shares. It also recently released its half-year results, which looked promising.
The bank’s interim numbers highlighted that things are getting better. While its net income for the six-month period only increased by 2% compared to 2020, profits drastically improved to £4bn. It’s worth noting here that profitability rose due to strong business momentum and also a net impairment credit.
But what does this mean? Well, the UK economy recovering should help consumers and businesses get back on track. This also means that they should be able to start repaying their loans, thereby improving credit performance. For a bank, this is great news as it can release the large amounts of provisions it set aside for bad debts.
Lloyds booked a net impairment credit of £656m during the half-year. Of course, this is only a temporary measure to boost profits. And there’s no guarantee this can continue.
But I reckon if things continue to improve, such net credit impairment releases could occur for the rest of the bank’s financial year. This could help push Lloyds shares further.
Most investors have historically held banking stocks for the income. The pandemic didn’t help since the UK regulator told banks to suspend dividends. I guess it didn’t want a repeat of the 2008/09 financial crisis.
Lloyds announced an interim dividend of 0.67p. But what I think is more important is that it’s reintroducing a progressive and sustainable ordinary dividend policy. This means that income should be back on the cards for shareholders in the foreseeable future.
The combination of significantly higher profits, reduction of provisions for bad loans as well as a more general positive outlook for the UK economy should help the bank continue to reward investors with dividends.
The lending giant also announced its acquisition of Embark, an investment and pensions platform business. This purchase diversifies the bank’s offering and complements its existing wealth advice service.
It also allows Lloyds to cross-sell its products, which is good for generating further sales and also increasing the lifetime of the customer with the bank. In the long term, this may help improve its brand and distinguish it from its peers.
Lloyds shares do come with risks. It’s still reliant on interest rates. I don’t expect these to rise any time soon and they could hinder profitability going forward. They could also impact its target to deliver its progressive and sustainable dividend policy. Especially now that it has started paying income to shareholders again.
But I think the bank is making good progress and I expect this continue. It has managed to weather the coronavirus storm. And so I’d buy Lloyds shares at the current price.
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Nadia Yaqub 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.