3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the dark horse bank.

| More on:
Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Image source: Getty Images

Lloyds (LSE: LLOY) shares have been in a steady downtrend in 2022 since touching a 52-week high of 56p at the beginning of the year.

With the Lloyds share price currently at 43p, here’s why I think now could be a great time to add some more shares in this FTSE 100 bank to my portfolio.

Rising interest rates

First, banking stocks tend to be rare beneficiaries from a tightening monetary policy environment. Although it has been less bold than the Federal Reserve in hiking interest rates, the Bank of England is coming under increasing pressure for faster increases as UK inflation spirals well above its 2% target.

There’s evidence from its latest quarterly results that Lloyds is already benefitting from changes to the base rate. The bank’s net interest margin — the difference between the net interest income it generates from credit products, such as loans and mortgages, and the outgoing interest it pays on savings accounts — increased to 2.68% versus 2.49% in Q1 2021.

Source: Lloyds Q1 2022 Results Presentation

I suspect the UK’s central bank will continue to hike rates throughout the year. Lloyds shares stand to benefit in this macroeconomic climate.

A high dividend yield

I also consider Lloyds to be a good investment for investors seeking passive income. The stock’s current dividend yield is 4.61%, which beats the FTSE 100 average of 3.98%. This is a higher yield than those offered by Barclays and HSBC at 3.77% and 3.54% respectively, and almost equal to NatWest‘s 4.73% yield.

What’s more, Lloyds recently announced a £2bn share buyback programme, which lifted its total capital return for 2021 to the equivalent of 4.82p per share.

Shareholders should be able to expect solid distributions going forwards, according to the group’s latest guidance. It has stated there will be “progression in the dividend per share in 2022 and beyond” in line with its commitment to a progressive and sustainable dividend policy.

A value proposition

Finally, at current prices, Lloyds shares look good value to me. The dark horse bank compares favourably to its closest Footsie competitors in respect of its price-to-earnings ratio and price-to-book ratio.

FTSE 100 BankPrice-to-earnings RatioPrice-to-book Ratio

Using multiple criteria, it’s a strong performer among its peers. In my view, the drawdown in the Lloyds share price means the bank is oversold in light of its impressive recent results and valuation metrics.

One risk facing Lloyds shares

Despite the favourable comparisons I mention above, Lloyds lacks the international diversification enjoyed by some of its competitors. The bank is the UK’s largest mortgage lender and has significant exposure to the UK housing market.

Leading property agent Savills expects house prices to decline by 1% in 2023. This could be a particularly acute headwind for the Lloyds share price. However, fundamental issues with the lack of housing supply mean any pain should be temporary in my view.

I already own Lloyds shares and I like it when stocks I own go on sale as this provides a nice opportunity for me to buy more, which is exactly what I’ll do with Lloyds trading at 43p.

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 considered so you should consider taking independent financial advice.

Charlie Carman owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays, 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.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »