At 45p, are Lloyds shares a no-brainer buy?

Lloyds shares look incredibly cheap at 45p. I am looking at Lloyds purely as an income play and think it is a top pick for me right now.

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British finance giant Lloyds Banking Group (LSE:LLOY) has been blowing hot and cold In the market recently. Every time Lloyds shares crash, they bounce back fast, only to fall again. Returns over the last 12 months stand at -10%, raising concerns among investors. But I think Lloyds shares are one of the best income plays right now for my long-term portfolio. Let me explain why. 

Can the Lloyds share price explode?

The whole finance sector is under scrutiny right now, with whispers of a recession and larger economic struggles underway globally. With inflation at a 30-year high of 7%, the UK economy is still firmly under the pandemic cloud. Earlier this month, the Bank of England (BoE) raised base interest rates up to 1%, the highest level in 13 years, to tackle this problem.

This could be a tricky period for financial institutions in the country. But I do not see Lloyds shares as a growth option at all. Any ‘explosion’ in share price will be a welcome bonus to my potential investment. But I am looking at the banker purely as an income option. 

Dividends and pointers

Lloyds shares come with a dividend yield of 4.3% at the current price of 45p. And the firm has steadily brought in cash from operations year on year. Being the biggest mortgage lender in the UK, Lloyds saw loans and advances to customers jump to £448.6bn in 2021, up £8.4 billion from 2020. Customer deposits went up £25.6bn to £476.3bn in the same period. 

This steady influx of means the bank almost always has a huge pile of liquid cash. The current yield is covered 3.7 times by earnings, which is a good sign for future dividends too. The board decided to roll out a share buyback worth £2.0bn, which is a sign that Lloyds shares will continue to be a steady dividend payer. 

And I wrote about Lloyds’ decision to invest in real estate in October. Through a partnership with UK’s largest real estate developer, Barratt Developments, Lloyds aims at owning 10,000 properties in the UK by 2025 and 50,000 by 2030. 

I am very bullish on the UK housing market. Even though analysts expect it to slow down, I think the pullback will be minimal. As people chase stable investments, I think housing will become a very important asset for young professionals. And by monitoring Lloyds shares’ performance, I think I can get crucial pointers to the health of the housing market and the larger UK economy.

My concerns and verdict 

Rising inflation and slowing global economies are a big concern right now. Big investors are pulling money out of foreign markets, which points to a fear of a recession. This could severely cramp the spending power of the average citizen. And interest rate hikes could force consumers to rethink house purchases now, slowing down real estate sales temporarily.

But I think Lloyds shares are a great dividend and the bank will likely continue to generate liquid cash even in a recession. And given its high trading volume and focus on real estate, I think Lloyds shares will allow me to judge market movements over the next decade. This is why the bank is high on my list of UK income plays.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suraj Radhakrishnan 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.

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