What might light a fire under Lloyds shares in 2023?

Lloyds shares have gone nowhere in 2023 and have lost 27% over five years. So what might turn the tanker around for shareholders?

| 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.

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Rummaging around in the FTSE 100 index earlier today, I spotted something that surprised me. So far this calendar year, Lloyds Banking Group (LSE: LLOY) shares have barely budged.

What’s more, they have lost considerable value since mid-2018. So why do I hold such high hopes for this widely held and heavily traded stock?

A tough four months

Go back to early February and Lloyds stock was riding high. Indeed, on 9 February, the Black Horse bank’s share price hit a 52-week high of 54.33p.

Within a month, a US banking crisis sent financial stocks plunging across the globe, including Lloyds shares. Here’s how they have performed over seven different periods, based on the current share price of 45.38p:

One day+0.2%
Five days+1.7%
One month-0.5%
Year to date+0.1%
Six months-0.9%
One year+5.9%
Five years-26.9%

Although it has been weak in 2023, this stock is up almost 6% over the past 12 months. Adding in cash dividends would push this return into double digits. Slightly better than the wider FTSE 100, but not exactly an exceptional performance.

At the current share price, Lloyds is valued at almost £29.7bn. That’s hardly a hefty price tag for the UK’s largest mortgage lender and a leading provider of credit to individuals and businesses.

Then again, Lloyds stock has underperformed the wider market since the global financial crisis of 2007/09, so perhaps its market discount is well-deserved?

We own Lloyds

For the record, my wife and I bought this stock for our family portfolio at 43.5p a share in late-June of last year. To date, we’ve made a modest return of 4.4% from this buy (excluding dividends), but are hoping for far higher returns to come.

Currently, this popular stock looks undervalued to me. It trades on a price-to-earnings ratio of 6.3,
for an earnings yield of 15.9%. That’s about twice the FTSE 100’s yield.

Also, the dividend yield of 5.3% a year looks attractive to me. Even better, it is covered three times by historic earnings. That’s a hefty margin of safety.

What might lift Lloyds shares?

One big worry at the moment is rising bad debts and loan losses at British banks, driven by rising interest rates, falling disposable incomes and sky-high energy bills.

However, if the group doesn’t report a hefty increase in write-downs in its half-year results on 26 July, then this would be good news for shareholders.

Second, if write-downs aren’t as bad as feared, then the bank might deliver earnings growth with its latest set of results. As a Lloyds shareholder, I’d see this as a positive development.

Third, with plenty of room for dividend increases, I’d hope to see the bank lift its cash payout, given the previous full-year payout rose by a fifth. Analysts expect this year’s payout to be lifted by a sixth (16.7%) to 2.8p from 2.4p a share.

Finally, my wife and I have no plans to buy Lloyds shares right now, largely due of lack of funds. But we fully intend to keep our existing holding for long-term dividend income and capital gains!

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.

Cliff D’Arcy has an economic interest in Lloyds Banking Group shares. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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

Illustration of flames over a black background
Investing Articles

Just released: October’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

A Black father and daughter having breakfast at hotel restaurant
Investing Articles

2 household names quietly thrashing the FTSE 100

Paul Summers takes a closer look at two FTSE 100 stocks that have soared despite recent economic headwinds. Will they…

Read more »

Investing Articles

A FTSE 250 share and an ETF I’d buy for a second income

I'm looking for ways to make a healthy passive income and I think this stock and this exchange-traded fund (ETF)…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

3 reasons why I’m avoiding Rolls-Royce shares like the plague!

Rolls-Royce shares trade on a meaty price-to-earnings (P/E) ratio of 30 times. Royston Wild thinks this leaves them in danger…

Read more »

Investing Articles

After crashing another 15% today is this FTSE blue-chip now the best share to buy today?

Harvey Jones has been watching FTSE 100 gambling stock Entain for months and is now wondering whether it's the best…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Here’s what Warren Buffett says is ‘the best way to minimise risk’ (it’s not buying the S&P 500)

What should investors do to try and avoid losing money? Warren Buffett has an answer that doesn’t involve buying an…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

2 cheap shares I wouldn’t touch with a bargepole in today’s stock market

These FTSE 100 and small-cap stocks are on sale right now. But Royston Wild believes these cheap UK shares may…

Read more »

Investing Articles

Here’s the growth forecast for Greggs shares through to 2027!

City analysts expect the UK's leading food-on-the-go retailer to continue growing. But would this writer buy Greggs shares today?

Read more »