As I write, Lloyds (LSE:LLOY) shares currently trade around the 44p mark.
After starting 2023 at 47p, the bank’s share price has since fallen by approximately 6%. Additionally, there’s been plenty of volatility between then and now.
In fact, since February this year, the shares are down by around 17%.
But should investors consider Lloyds shares to be cheap? I think so. What’s more, I reckon that at 44p, the shares could well present an outstanding buying opportunity. Here are three reasons why.
Resilience in the face of unstable macroeconomic conditions
Analysts describe Lloyds as a good barometer for the overall health of the UK consumer and its smaller businesses.
Amid rising cost pressures stemming from a variety of factors, I’m impressed that the bank is proving its resilience.
This is clear to see in the group’s financial performance. First-quarter results were impressive, surpassing analyst expectations due to lower-than-anticipated impairment charges set aside for loan defaults.
Net income was up 15% to £4.7bn, largely driven by higher net interest income, which benefited from higher interest rates.
But this highlights a key risk with Lloyds in that its focus on traditional banking means it’s more exposed to the interest rate cycle than its competitors.
As borrowing costs go up, some clients may face difficulties in servicing their debts. This could potentially lead to higher default rates and increased credit losses for the bank.
Despite this, I find the robust risk management and strategic planning from the bank’s bosses reassuring. Most recently, this has included a refreshed plan to build out the bank’s small business offer as well as increase the focus on larger corporate and institutional clients.
The advantage with this is that both groups have the potential to generate fees, rather than just interest income.
A juicy dividend yield
Beyond its robust financial performance, Lloyds boasts a handsome dividend yield of 5.5%. For investors seeking dividend income, I think this makes Lloyds an even more attractive pick.
Furthermore, thanks to a progressive and sustainable dividend policy, the group’s robust capital position means that dividends should remain well-covered by earnings for the foreseeable future.
However, dividends are never guaranteed. After all, during the Covid-19 pandemic the board decided that until the end of 2020 the group would undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares.
A strategy for success
I’m most impressed by group’s ambitious strategy, which focuses on driving revenue growth and diversification.
Around two thirds of the £3bn strategic investment over the first three years of the latest strategy is aligned to growing and diversifying revenue.
I’m confident that by prioritising opportunities across each of the businesses, the groups can ensure it generates value in the near term and creates new revenue streams that deliver over the longer term.
For these reasons, I’m convinced that at 44p, Lloyds could be one of those once-in-a-decade buying opportunities. If I had any cash to spare, I’d hoover up some shares right away.
