Seven weeks ago, things were looking rosy for Lloyds Banking Group (LSE: LLOY) shareholders, with Lloyds shares riding high after hitting their 2023 peak. Since then, it’s mostly been downhill for this widely traded stock.
Lloyds stock swings
During a period of wider market weakness, the Lloyds share price hit a 52-week low of 38.51p on 13 October 2022. Then it came roaring back as investor confidence returned.
At its 2023 peak, this FTSE 100 stock hit 54.33p on 9 February. Sadly for shareholders (including me), the shares have taken a few knocks recently. Hence, they have fallen 14.8% from their 2023 high.
Here’s how the shares have performed over seven timescales:
| Current price | 46.27p |
| One day | +1.2% |
| Five days | -0.8% |
| One month | -10.7% |
| Year to date | +2.3% |
| Six months | +6.9% |
| One year | -5.2% |
| Five years | -30.2% |
Following this latest price weakness, Lloyds stock is down more than a tenth over one month and has lost 5% in 12 months. Even worse, the shares have declined more than three-tenths over the past half-decade.
That said, these returns exclude cash dividends, which would add several percentage points a year to the above figures. Indeed, many investors — including my family — have bought into Lloyds specifically for its market-beating dividend yield.
Is this a repeat of 2008?
Right around the globe, bank shares look weak right now. This follows the collapse of three mid-sized US banks, as well as the emergency rescue of Credit Suisse, Switzerland’s second-largest bank.
However, I’m confident that 2023 will not be a repeat of 2008, when many major banks needed bailing out worldwide. (I covered the 2007/09 global financial crisis (GFC) for this website and others back then.)
For me, this feels nothing like 2008’s market meltdowns, which were punctuated with weeks of financial havoc and carnage. Back then, panicked commentators suggest that capitalism itself was close to the brink of collapse.
Lloyds is a boring bank
Of course, Lloyds itself needed a taxpayer-backed bailout back in 2008/09, totalling £20.3bn. After this near-failure, the Black Horse bank completely rebuilt itself.
Nowadays, Lloyds has more liquidity (access to quick cash), holds more high-quality assets on its balance sheet, and has a much lower-risk portfolio than during the GFC. Today, I mostly view it as a ‘boring’ mortgage bank.
As my title states, Lloyds shares look a steal to me. Why? First, because I’d gladly pay the bank’s current market value of £31.1bn to own the UK’s largest retail bank.
Second, because this stock trades on a lowly price-to-earnings ratio of 6.4, for a corresponding earnings yield of 15.6%. That’s close to twice the earnings yield of the wider FTSE 100.
Third, because Lloyds’ dividend yield of 5.2% a year is about 1.3 times the Footsie’s yearly cash yield of around 4%. What’s more, Lloyds’ cash payout is covered three times by trailing earnings. To me, this is a comfortable margin of safety.
Of course, 2023 is set to be a much rougher year for banks than 2022. Weaker economic growth, rising bad debts, and higher loan losses will surely hit bank earnings this year. And a UK housing crash would be mighty bad news for the Big Four banks.
Even so, if I had some spare cash to buy Lloyds shares, I’d eagerly buy more right now!
