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Is Lloyds’ (LON: LLOY) share price a bargain right now?

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

The Lloyds Banking Group (LSE: LLOY) share price has remained remarkably resilient, despite growing fears about the UK economy. In fact, it’s risen almost 4% in value over the past month, around 1.1% more than the broader FTSE 100 has. It’s up 63% over the past 12 months too.

For a stock whose fortunes are tied so closely to the performance of the UK economy this could be considered impressive. Not even news that domestic GDP grew at its slowest pace for six months in July has stopped Lloyds’ share price from rising. It’s all the more surprising given that Lloyds has no overseas exposure which can support profits as economic conditions worsen here.

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FTSE 100-beating value

Lloyds is clearly a firm whose risk profile appears to be worsening (to my eyes at least). Yet fans of the FTSE 100 firm might argue that the cheap LLOY share price reflects this growing threat.

City analysts think Lloyds’ profits will surge following the initial shock of Covid-19 on 2020’s earnings. A 510% bottom-line increase is predicted for this year. That leaves the bank trading on a forward price-to-earnings (P/E) ratio of 6 times. This is some distance below the broader FTSE 100 average of 13.5 times. It’s also more attractive than the corresponding ratios of industry rivals like HSBC (9 times) and Natwest (10 times).

Hand holding pound notes

5.3% dividend yields!

On top of this, a case can be made that Lloyds is one of the best dividend stocks to buy at current prices. Expected dividend growth in 2021 and 2022 create glorious yields of 4.8% and 5.3% respectively. These figures beat the Footsie forward average of 3.5% by quite a distance. In an age of rocketing inflation picking dividend stocks with bulky yields is particularly important.

The big yields aren’t the only reason why Lloyds looks good as an income stock. Predicted payouts for 2021 and 2022 are covered 3.4 times and 2.4 times by expected earnings. These are well above the security benchmark of 2 times, territory which means profit will likely be double the amount paid out in dividends.

Is Lloyds’ share price cheap enough?

The outlook for the UK economy remains pretty foggy but there are pockets of good news for Lloyds. British house prices are rising at their fastest pace since 2007, an encouraging omen for the country’s biggest home loans provider. It also has much more to come from its multi-billion-pound digital investment programme that’s helping it cut costs and take on the challenger banks.

That said, I’m afraid the Lloyds share price isn’t cheap enough to tempt me to invest. It might be up 63% on a 12-month basis, but it’s basically flatlined over the past decade as low interest rates have damaged profitability. I also expect central bank policy to remain extremely loose as the UK economy likely suffers severe pandemic- and Brexit-related hangovers.

Furthermore, the rate at which the challengers are grabbing custom from established banks like Lloyds is also a massive concern to me. All things considered, I think there are much more attractive dividend stocks for me to buy right now.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.

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