Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to ride out a consumer slowdown, so its shares may be too cheap.

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One UK company I keep a close eye on is Lloyds Banking Group (LSE: LLOY). That’s because I regard the Black Horse bank as a rough bellwether for the UK’s economic health. Thus, when Lloyds shares are doing well, British business is often flourishing. So how has the bank’s share price fared of late?

Lloyds shares slide in 2022

For the record, here’s how the Lloyds share price (currently 43.4p) has performed over seven different timescales:

One day0.0%
Five days-0.7%
One month-3.8%
Year to date-9.2%
Six months-9.6%
One year-6.7%
Five years-34.4%

As you can see, Lloyds stock has dropped almost a tenth so far this calendar year. To me, that doesn’t seem too bad, given the background of red-hot inflation, rising interest rates, plunging consumer confidence, the Russia-Ukraine war, and the rising risk of a global recession. That said, Lloyds shares have been something of a dog over the past half-decade, losing more than a third of their value.

What might revive the share price in 2022-23?

After recent declines, here’s how the bank’s fundamentals stack up right now:

Share price43.3p
52-week low (7 March 2022)38.1p
52-week high (17 January 2022)56p
Market value£30bn
Price/earnings ratio5.8
Earnings yield17.2%
Dividend yield4.6%
Dividend cover3.7
Based on the share price as at 4pm on Monday, 27 June 2022

As things stand, the Lloyds share price is much closer to its March low of 38.1p than its January (pre-war) peak of 56p. At first glance, this leads me to believe that there may be hidden value in this popular and widely held stock. After all, the current no-premium price tag of £30bn would buy me one of the UK’s largest retail banks with up to 30m customers and almost 65,000 workers. That doesn’t seem pricey to me.

However, the problem with the above figures is that they’re trailing — backward-facing — numbers. And 2021-22 was an outstanding year for Lloyds, as the bank released billions of pounds of reserves previously set aside against loan losses. With a cost-of-living crisis rocking the UK this year, it’s likely that the bank’s latest results will take a hit as economic growth slows.

What next for this stock?

What would I like to see to support the current Lloyds share price and pump it up in future? First, I’d like to see some resilience in earnings in its half-year results, due to be released on 27 July. Rising interest rates should widen Lloyds’ net interest margin and, therefore, boost interest income.

Most importantly, I’d like to see a commitment from the board of directors to lift cash dividends over time. At present, this stock has a dividend yield of 4.6% — about 1.2 times the wider FTSE 100‘s cash yield. I’d like to see this move up to 5% and beyond, as financial conditions allow. Also, with the bank’s balance sheet in good shape, I’d be delighted to see some spare capital used for buybacks while the shares price lingers at modest levels. Finally, I don’t own Lloyds shares currently, but would happily buy these cheap shares at present prices!

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.

Cliffdarcy 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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