Shares in Lloyds Banking Group (LSE: LLOY) are among the most widely held and heavily traded in the UK. But I haven’t owned Lloyds shares since the global financial crisis of 2007-09 erupted. However, this changed last month, when my wife bought Lloyds stock for our family portfolio. What made me change my mind after 14 years?
Why I bought Lloyds shares
Shares in the Black Horse bank have been on my radar since Covid-19 went global in March 2020, sending stocks crashing worldwide. Indeed, I wish I’d bought into the bank during the depths of the coronavirus pandemic, as I’d be sitting on some pretty decent profits today.
Anyway, here’s how the Lloyds share price has performed over seven different timescales:
| One day | 1.8% |
| Five days | -0.6% |
| One month | -1.1% |
| Year to date | -12.6% |
| Six months | -24.3% |
| One year | -8.7% |
| Five years | -38.7% |
Lloyds shares have fallen over all periods ranging from five days to five years, but gained 1.8% on Friday. It’s this steady decline that finally pushed me to buy the stock last month. That’s because I’m a veteran value investor always seeking cheap shares in decent businesses. Hence, when share prices fall, stocks become more attractive to me, not less.
Lloyds has kept falling
Taking into account stamp duty and share-dealing charges, my wife bought our initial stake in Lloyds at just below 43.29p per share. Of course, having taken the plunge by purchasing this stock, the price promptly fell even further. Typical, right?
On Friday, the Lloyds share price closed at 41.9p, so we’ve already lost around 3.2% of our investment. Trust me, this ‘after-buy fall’ is something that has happened with almost every buy I’ve made in 35 years as an investor. But after decades in the market, I’m very used to volatility, so it doesn’t really bother me. It’s how much Lloyds shares will be worth in five and 10 years that’s of most interest to me.
Should I keep buying this stock?
Many, many complex factors affect stock prices. These include fundamentals, momentum, sentiment, market direction and so on. But the only thing I can find with any certainty is a stock’s fundamentals, so I rely on these figures when making buying decisions. For the record, these are Lloyds’ trailing — that, backward-looking — fundamentals.
| Share price | 41.9p |
| 52-week low | 38.1p |
| 52-week high | 56.0p |
| 12-month change | -8.7% |
| Market value | £28.6bn |
| Price/earnings ratio | 5.6 |
| Earnings yield | 17.8% |
| Dividend yield | 4.8% |
| Dividend cover | 3.7 |
These fundamentals still look attractive to me. For example, Lloyds’ dividend yield of 4.8% a year is over 1.2 times the FTSE 100‘s yearly cash yield of around 4%. What’s more, it’s covered 3.7 times by earnings, so the bank’s profits would have to implode before putting this cash payout in danger.
To sum up, I’d happily buy shares in Lloyds at current price levels. But I won’t, because my aim is to build a new, well-diversified portfolio of quality stocks — and this already includes Lloyds. Of course, I’m also worried about red-hot inflation (particularly for fuel and energy), rising interest rates, a global recession and the war for Ukraine. But I think most of these anxieties are already baked into Lloyds shares, which is why I still view them as a bargain buy today!
