Is the Lloyds share price low enough to buy now?

At 43p, the Lloyds share price looks like good value. But with large challenges ahead, can it return to being a solid dividend payer?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Lloyds share price (LSE: LLOY) hasn’t been that strong for a while. And now it’s down over 15% this year already.

That doesn’t compare favourably to the FTSE 100 fall of just over 2% in the same period.

In fact, while the FTSE 100 has pretty much recovered from it’s pandemic-driven lows, Lloyds shares remain stubbornly below their pre-Covid range of 50p-60p.

And let’s not even get started on looking back to before the financial crash of 2008, when the shares were well above £2.

But does that mean there’s an opportunity for me to pick up Lloyds shares now on the cheap?

As one of most traded shares in the FTSE 100, maybe I should finally be getting in on the act too.

Positive news ahead?

The history of a stock is a useful guide, but the future is what matters. So, when considering which shares to buy for the long term, I look ahead rather than back.

And the future holds some good news from Lloyds’ perspective, with further interest rate rises on the cards from the Bank of England. The next rate decision, due on 4 August, has analysts and markets evenly split between forecasting a 0.25% or 0.5% rise.

Rising rates could continue for a while as the UK and other countries alike try to tame inflation. Higher rates mean higher margins on Lloyds’ main mortgage lending business. That should boost profits and the share price.

But there’s a way to go before we return to the more ‘normal’ 5% interest rate range we saw before the financial crash. So realistically, I think Lloyds shares have far more potential as an income share, rather than a growth share for now.

Can Lloyds be a stable earner?

Long-term shareholders have had a tough time of it. After the dividend was halted in 2008, it wasn’t restarted until 2014.

Lloyds share price dividends

Since then, it’s not exactly been a dividend aristocrat, but it has at least been paying a dividend. And at current prices, the yield is around 4.5%.

That won’t beat inflation, but it’s comfortably above the 3.8% FTSE 100 average.

So, I could buy now while it’s relatively cheap and hold, just for the income. But I do see some major hurdles ahead for Lloyds.

Long-term challenges

There’s no doubt that banking is changing. As more and more people go for the ease and convenience of online banking, Lloyds needs to evolve.

So far, the wider digital transformation in the sector has focused on simpler accounts. But it’s not difficult to see the big online competitors expanding into cross-selling other more complex products, including mortgages.

That’s why I think Lloyds faces a real threat to the competitiveness of its main mortgage business. Especially with rising interest rates making that business more attractive to rivals.

I think it will come down to how well and how fast CEO Charlie Nunn can implement the new group strategy. It’s something to watch out for.

Am I tempted by the low Lloyds share price?

I can see why, when priced in the low-40s, Lloyds shares can look an attractive income prospect. But I’m not yet convinced about its long-term growth prospects.

I’ll hold fire on buying for now and watch that dividend reliability.

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.

Michelle Freeman 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.

More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A once-in-a-decade chance to get rich buying growth stocks?

We haven't seen a good spell for growth stocks for quite a few years now. But I reckon the signs…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

The FTSE 100 is full of bargains! Here’s 1 stock I’m eyeing up

A weak economic outlook has hurt the FTSE 100. This Fool explains why she likes the look of this consumer…

Read more »

Investing Articles

2 no-brainer beginner FTSE 100 stocks to buy for my portfolio

Getting started with investing can be daunting. Here are two stocks for beginners to consider buying to build their first…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 recession-resistant UK shares investors should consider buying

Our writer details two UK shares she feels could withstand some of the ill-effects of the current malaise to provide…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Glencore share price drops on results. Time to buy?

The Glencore share price wobbled a bit after a weak set of 2023 results. Here's why I have the stock…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Big trouble in China sinks HSBC shares. Should I invest after record FY results?

HSBC shares have slumped following a disappointing end to 2023 for the FTSE stock. Royston Wild explains why this may…

Read more »

View of Tower Bridge in Autumn
Investing Articles

3 dirt cheap FTSE 100 shares to snap up today?

The FTSE 100 is rallying, but many shares still look super cheap on fundamentals. Is our writer buying these three…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

The Rolls-Royce share price tripled in 2023. Roland Head wonders whether this FTSE 100 stock could continue that impressive trajectory…

Read more »