Due to a combination of holidays and health issues, I have barely written about stocks and shares since 19 August. However, the past two months have been frantic for financial markets, with stocks plunging on both sides of the Atlantic. And as the UK heads towards what might well be a deep recession, the Lloyds Banking Group (LSE: LLOY) share price has fallen steeply over the past month.
The Lloyds share price dips and dives
As I write mid-afternoon on Wednesday, the Lloyds share price stands at 40.68p, sliding over 4.5% today. To be honest, I’m surprised Lloyds stock has fallen so far, as it closed at 49p less than a month ago on 20 September. Here’s how this popular and widely held share has performed over six timescales:
| Five days | 4.6% |
| One month | -17.0% |
| Six months | -10.3% |
| 2022 YTD | -14.8% |
| One year | -17.6% |
| Five years | -39.3% |
Then again, over the past six months, Lloyds shares have performed only slightly worse than the FTSE 100 index, which has lost 8.9% of its value in the past half-year. But over five years, Lloyds stock has produced rotten returns, losing almost two-fifths of its value, versus an 8% decline for the Footsie. Urgh.
I’ve yet to lose faith in Lloyds
When I weigh up whether to buy shares in listed companies, I always ask myself whether I would like to own the entire business. In other words, had I the cash at hand, would I pay £27.4bn to buy Lloyds at its current market valuation? (Of course, I’d actually have to pay a considerable premium to take over the Black Horse bank, but you catch my drift, yes?)
If I were to buy Lloyds today, I would own the UK’s #1 retail bank, with roughly 30m personal and business customers. What’s more, UK interest rates are rising and are expected to keep climbing until mid-2023. As rates rise, this boosts banks’ net interest income — the interest they make from borrowers less what they pay out to savers. And as the UK’s biggest mortgage lender, Lloyds stands to benefit handsomely from rising rates.
On the other hand, the soaring cost of living, skyrocketing energy and fuel bills, a shrinking economy and the war for Ukraine have produced a perfect storm for British consumers. Thus, I’m convinced that 2023 could be a rough year for us and perhaps for Britain’s biggest banks, too.
Even so, Lloyds shares still look cheap to me at current levels. Right now, they trade on a trailing price-to-earnings ratio of 6.7, for an earnings yield of 14.9%. What’s more, they offer a market-beating dividend yield of 5.2% a year, covered over 2.8 times by earnings. This future passive income seems rather attractive to me.
Summing up…
As a long-term value investor, I don’t panic when share prices fall, because this often presents me with opportunities to buy bargains. Despite all my economic worries, I reckon Lloyds shares will come good over the coming decade. And that’s why I will hang onto my Lloyds stock for now — and if the Lloyds share price keeps falling, I will try to talk my wife into buying more shares!
