With Lloyds (LSE: LLOY) shares currently trading for around 44p, it’s clear the stock has had a poor time so far this year. In fact, the Lloyds share price has failed to excite over the past 12 months. Within this period, it’s returned a little under 1% to shareholders.
However, I think the shares could be a great addition to my portfolio. Granted the stock has struggled over several years. But I think there’s plenty that’s exciting about Lloyds too. Let’s explore.
Current economic conditions
The last few months have seen inflation reach levels not seen for decades. It was announced earlier this week that inflation had hit a new 30-year high in the UK, standing at 7% in March. This was due to issues such as rising fuel prices, the war in Ukraine, as well as Covid-related supply chain issues have.
For Lloyds, the current economic backdrop is a double-edged sword. Looking at the positives, the Bank of England has increased interest rates to 0.75% to combat the inflation rise. And with inflation set to continue moving upwards, further increases by the Bank seem inevitable. This means Lloyds will be able to charge more when lending to customers, which will boost revenues. For Lloyds shares, this is good news.
However, the rising cost of living may also be an issue for the bank. This is because it may reduce the prospects of people taking out loans. Even worse, Lloyds may find consumers and businesses defaulting on payments, adversely impacting the bank’s earnings.
Lloyds’ wider positives
Despite the potential problems that current macroeconomic factors may cause, I see plenty of other positives for Lloyds.
To start, I like it due to its incredibly low valuation. The stock currently trades on a price-to-earnings (P/E) ratio of 5.92. This is comfortably within the benchmark P/E ratio of 10. I also deem Lloyds a solid passive income stock. It currently offers a dividend yield of 4.5%, floating above the FTSE 100 average of between 3%-4%. For me, these are tempting factors.
I like the moves the bank is making in the residential landlord business too. It’s already the UK’s largest mortgage lender. And its Citra Living venture may also soon make it the UK’s largest private landlord. While this has come under scrutiny, I think this diversification will be good for the bank.
Why I’d buy
While Lloyds may face pressure due to rising inflation, this is partially offset by the increased charges customers will see when borrowing from the bank. I also like Lloyds due to its low valuation. And coupled with the passive income received from its strong dividends, I think the stock would be a great addition to my portfolio. As a result, I would buy Lloyds shares today.
