Sometimes I want to give the Lloyds (LSE: LLOY) share price a kick, just to see if it’s still alive. It’s a sleepy little thing. Over the last two years it’s barely shifted, falling 3.78%. Over 12 months, it’s down 3.98%.
Shares in Lloyds Banking Group have shown some zip in the last six months, but in the wrong direction, crashing 18.65%. I’d like some forward motion, please.
A top FTSE income stock
That hasn’t stopped me from buying shares in Lloyds. Quite the reverse. At below 45p, it’s too cheap to resist. Especially when I look at the dividend.
Currently, Lloyds yields 5.75% a year. That’s forecast to hit 6.71% in 2023 and 7.45% in 2024. This is a fabulous prospective income stream, and I’m looking forward to it coming my way.
In one respect, I benefit when Lloyds shares go nowhere. It means my reinvested dividends pick up more stock, which will pay me more dividends. Yet at some point I want to see them climb. Just to show they can.
Call me a deluded optimist, but I think it’s possible. Right now, the stock is being held back by wider sentiment as investors wait for a clear sign that inflation is beaten and interest rates will soon fall. We haven’t had it yet.
Today’s higher interest rates have boosted net margins but also driven up loan impairments. The two appear to have cancelled each other out. There’s also a chance that higher yields on cash and bonds have persuaded many investors they don’t need to take a risk by investing in dividend stocks.
I’m not of that view. Today’s high savings rates will fall the moment the Bank of England cuts base rates. By contrast, Lloyds’ shareholder payouts are likely to carry on rising. I don’t find government and corporate bonds that tempting, even with today’s higher yields. History shows that over the longer run, the total return from equities easily beats bonds. For me, it’s no contest.
Get a move on!
Now I need Lloyds shares to show what they can do. At time of writing, they trade at 41.84p. I could have bought them for that in May 2009, more than 14 years ago. While they’ve had moments of excitement in the interim, they’ve ended up in the same place.
Perhaps they will never increase and inertia is baked in. I don’t actually believe that. I think that when interest rates fall and the UK economy recovers, they may be a little more fleet of foot. But even if they continue to idle, I still plan to buy Lloyds shares.
Income of 7.45% next year is pretty special and it should continue to rise as profits increase. Lloyds makes money, you see.
In July, half-year profits jumped 23% to £3.8bn. The board recently hiked the interim dividend 15% to 0.92p a share. This is a great income stock, which is why I bought it. I’d like to see some capital growth too. But if I don’t, I won’t kick myself. I’m still happy to hold Lloyds shares.