The Lloyds (LSE: LLOY) share price is something of a mystery to me. I’ve spent years expecting it to break out of its low, low range, but it never does. A time of writing it trades at 49.7p, a similar level to 2013. It has gone nowhere fast in nine years.
Those with long memories will remember when the Lloyds share price hit an all-time high of 976p in early 1999, some 23 years ago now. Today the stock trades at a fraction of that level, and Lloyds is a fraction of the banking force it was.
The Lloyds share price is rocky
We all know why. Lloyds wouldn’t exist at all if taxpayers hadn’t spent £20.3bn bailing it out in 2008. Management claimed in 2017 that taxpayers ultimately made a £900m profit on the transaction, from a combination of share sales and dividends. Others dispute that.
Back in 1999, Lloyds only had 5.5bn shares in issue, giving it a market cap of around £53.7bn. Today, there are 70bn shares in issue, but the market cap is a shrunken £34.8bn. Earnings per share (EPS) in its 1999 heyday were 46.2p. Today, EPS are just 7.5p. This frustrating share price performance of the last decade looks justified by that measure.
Few people foresaw the banking crisis or the Lloyds share price crash (no matter what they claimed later). Not many expected it would take so long to recover, either. If we’d all known, it wouldn’t be one of the UK’s favourite stocks. It was in 1999, it is today.
Lloyds is a chastened beast. Investors eye its share price with caution. They don’t like to get too close. Yet with that in mind, I would still buy it.
I’d buy this FTSE 100 bank for income
Lloyds has been through a dozen tough years as management has had its hands full clearing up the mess left by the financial crisis, while near-zero base rates have squeezed net interest margins. The underpowered Lloyds share price reflects that struggle.
Yet I still think the bank remains a key building block of a balanced portfolio of FTSE 100 shares. After pulling out of its foreign ventures, it now has an almost exclusive UK focus, where it has 26m retail and commercial customers. That brings negatives as well as positives, of course. Brexit has cast a shadow. As did the pandemic. Now we have skyrocketing inflation and the cost of living crisis to worry about. Lloyds is exposed to it all.
If the housing market stumbles, the Lloyds share price could also fall. Yet I think that now is a solid entry point. The stock trades at just 8.1 times forward earnings, so I wouldn’t feel I was overpaying. Better still, it offers a forecast yield of 4.8%, covered 2.5 times by earnings, giving scope for dividend progression.
That’s why the Lloyds share price performance doesn’t worry me too much. It’s the income I’m after.