Lloyds Banking Group (LSE:LLOY) is currently trading at 44.9p. This is up 5.8% in the last year, and an astonishing 81% since its Covid pandemic low in September 2020. But I still think the Lloyds share price is a cheap buy for my portfolio now, and here are three reasons why.
1. Profitability
It may sound simple, but I like profitable businesses in my portfolio. Lloyds have been posting consistent profits for years. Net profit for financial year 2021 was £5.8bn, its highest in the last five years.
When examining the quarterly figures, the three months to June 2022 were also highly profitable, bringing in £1.6bn at a net profit margin of 36.6%! This is considerably better than the last two quarters, but not as good as June 2021, where the net margin exceeded 50%!
From a shareholder point of view, this often translates into dividends. The mortgage lender currently has a dividend yield of 4.7%. This is well above the FTSE 100 average, which is sitting at between 3% and 4%.
Lloyds also has a solid history of paying dividends. It has consistently paid out interim and final dividends since 2015, with a brief hiatus through Covid-hit 2020.
2. Revenue rebound
As a shareholder, it’s pleasing to see that revenues are back to 2019 levels.
The pandemic impacted the 2020 results significantly. The bank saw a 34.9% decline in income for financial year 2020, which was cause for concern amongst investors.
But revenue has rebounded back to £17.1bn in 2021. The half-year results for 2022 led to an announcement of enhanced guidance for the full year. This is a great sign that the recovery is being sustained.
3. Outlook
More than half of Lloyds’ income comes from retail banking, and its half-year results showed substantial growth in mortgage balances and consumer credit card balances. Consumer banking is a competitive market, so being able to post growth at any stage is a good sign, in my opinion.
The wider economic climate will also help. Rising interest rates are good news for banks. With the Bank of England looking set to raise interest rates again at its next meeting, this will improve profitability for Lloyds.
Intervention by the government on the cost-of-living crisis could be a bonus for Lloyds too. Energy bills being capped, for example, might mean more customers can apply for mortgages. This is good news for a bank that focuses on the retail banking sector.
I do consider there to be a risk that dividend payments stop if the UK moves into a recession. But it seems to me as though the potential upsides outweigh the risks.
On balance, this is a company I really like in my portfolio. I’m strongly considering adding to my existing position.
