Lloyds Bank (LSE: LLOY) has come a long way since last year. At this time in 2020, its share price had fallen to abysmal levels as we were still powerless against the pandemic.It has risen 60% since, however. Like all stocks sensitive to the state of the economy, it too became attractive to investors as prospects improved.
However, a closer look at the trends in the Lloyds Bank share price reveal that not all is great with the stock right now. In the past three months, it has fallen some 12%. This is despite a rise in the FTSE 100 index in this time, on average. Some of this decline is not hard to understand. There have been some concerns about its future recently.
What is holding investors back?
Rising Covid-19 cases and another potential lockdown are two issues. Because segments like banks are vulnerable to the resulting pullback in the economy, their share prices can react more than the overall index. Also, the rollback of the stamp duty holiday could impact Lloyds. This supportive policy buoyed real estate during the pandemic. And Lloyds Bank is the UK’s largest mortgage lender. Interest rates are also still low and while they could rise if inflation gets out of hand, that has not happened yet. As a result, the bank is limited in its ability to increase interest income.
Lloyds Bank also has a low dividend yield of around 3%, which is below the average FTSE 100 yield of around 3.5%. It had a high dividend yield before the pandemic, but along with other financial firms, it was directed to first stop and then limit dividend payouts by the regulator. This may have been a big reason that it disappointed investors. The stock has seen limited capital gains in the past and dividends were a key part of its appeal.
Positives for the Lloyds Bank share price
However, I think another possible reason for a sell-off with Lloyds Bank is stock rotation. Other shares that gained a lot after the November rally of last year saw a similar trend in recent months. This indicates a bias towards relatively beaten down stocks against those that have already run up significantly.But by this logic, Lloyds could also start picking up soon.
And there are fundamental reasons to like it as well. Its performance has improved in the recent quarters, beating analysts’ estimates. A thriving economy works in its favour too. The UK economy has displayed sharp growth in the last quarter, and this trend could continue into the rest of the year. While its dividends are low now, they could improve over time.
I think the odds are evenly balanced for the Lloyds Bank share price right now because pandemic risk has risen again recently. However, I still think that it can rise further from here if all goes well. We will know if that is the case soon enough. I would give it a month or so before I buy the stock.
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Manika Premsingh 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.