Right now, I see plenty of reasons not to buy shares. The cost of living is soaring as UK inflation (rising consumer prices) hits a 40-year high. Gas and electricity prices and the price of oil are going through the roof. Interest rates are rising, raising fears of a global recession. And while Ukraine battles a Russian invasion, Chinese economic growth is slowing. Despite these fears, when I look at Lloyds Banking Group (LSE: LLOY), shares, I see deep value today.
Lloyds shares jump around
The price of Lloyds shares has bounced around a fair deal over the past 12 months. At its 52-week high, the Lloyds share price hit 56p on 17 January 2022. Following the invasion of Ukraine on 24 February, the price crashed to a 52-week low of 38.1p on 7 March. As I write on Monday afternoon, this stock trades at 45.16p. Here’s how it has performed over seven different timescales:
| One day | -0.2% |
| Five days | 1.9% |
| One month | -2.2% |
| Year to date | -5.5% |
| Six months | -3.5% |
| One year | -9.3% |
| Five years | -34.9% |
As you can see, Lloyds shares have lost value over all seven periods, except the last five days (+1.9%). Over one year, the share price has dropped 9.3%, versus a rise of 7.2% for the FTSE 100 index. And over half a decade, this stock has lost almost 35% of its value. Ouch. (All figures exclude dividends.)
This share looks cheap to me
Despite all the local and global problems that could send its stock plunging once more, I see hidden value in Lloyds shares today. Here are the group’s trailing fundamentals, based on the current share price of 45.16p:
| Market value | £31.2bn |
| Price-to-earnings ratio | 6.1 |
| Earnings yield | 16.5% |
| Dividend yield | 4.4% |
| Dividend cover | 3.7 |
Three reasons I’d buy this stock now
Why would I buy Lloyds shares today? First, they offer a bumper earnings yield of 16.5%. This is almost 2.9 times the 5.8% earnings yield of the wider FTSE 100. To me, this suggests that the market perhaps values this stock too cheaply.
Second, Lloyds shares offer a trailing dividend yield of 4.4% a year. This beats the FTSE 100’s cash yield of below 4% a year. Third, Lloyds’ full-year dividend is covered more than 3.7 times by its earnings. Again, this suggests to me that the current dividend is safely covered, plus it leaves plenty of scope for future increases.
To sum up, I don’t own Lloyds shares today, but I would gladly buy this stock at the current price. However, I could be wrong. Lloyds shares could be hit by falling house prices, rising bad debts and weaker UK growth. Nevertheless, as an old-school value/income investor, I see the Black Horse bank as a great addition to my family portfolio for extra passive income!
