Would I be silly not to buy Lloyds shares at 43p?

At 43p, this Fool is bullish on Lloyds shares. Here he explains why he’d be keen to snap up the stock today.

| More on:
Smart young brown businesswoman working from home on a laptop

Image source: Getty Images

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.

It’s been a whirlwind five years for Lloyds (LSE: LLOY) shares. Investors back then would have had to muster up 57p for a share in the Black Horse Bank. At times, the stock’s price has been above 64p. However, today I could grab one for just 43p.

I already own Lloyds shares. In fact, they make up a large part of my portfolio. I think the shares look cheap. And with that, I’m strongly considering buying some more.

A source of income

There’s a mix of reasons I own Lloyds shares. But I’ll start with passive income. At 5.9%, there are other stocks out there offering higher dividend yields. But nearly 6% is not be sniffed at.

This comfortably tops the FTSE 100 average. And despite the UK base rate being at 5.25%, banks have come under pressure for not passing this on to savers. So, it also beats me leaving my cash in a savings account.

Dividends can be volatile. We saw in the pandemic that businesses can reduce them. Even worse, they can be stopped completely. But I’m fairly confident Lloyds will pay out, given its dividend is covered around three times by earnings. Looking forward, some analysts forecast the Lloyds dividend could reach the 7% mark.

The bank has also undertaken numerous share buyback schemes. The most recent one amounted to nearly £2bn.

Weak outlook

With that said, it’s not all good news. And I fully expect the short term to be rough for the stock. First of all, Lloyds is more exposed than its competitors to the UK economy given its domestic focus. Any blips in the UK will have a greater impact on the firm than its peers. A recent prediction that the UK economy won’t experience growth until 2025 could signal rough times ahead for the business.

On top of that, as the UK’s largest mortgage lender, a weak outlook for the housing market may also prove to be a stumbling block.

Still confident

Regardless, this isn’t to say Lloyds can’t cope. The bank has a strong balance sheet, highlighted by its CET1 capital ratio (a measure of solvency) of 14.6%. This sits above the 12.5% target, as well as 1% higher than Lloyds’ management buffer.

The stock also looks cheap. Its price-to-earnings ratio for the last 12 months is around five. Its price-to-book ratio, which measures the price of the stock relative to the value of its assets, is just 0.6.

Finally, I’m a Fool. So, when I buy a stock, I plan to own it for years to come. With that in mind, I’m a fan of Lloyds’ latest strategic investment. With £3bn, the firm is taking strides such as upgrading its digital capabilities in an attempt to drive revenues.

Time to buy?

At 43p, Lloyds shares look cheap. And at that price, if I had some spare cash, I’d buy.

I’d imagine the share price will stagnate in the months ahead given the outlook for the UK economy. Yet despite that, I think at their current price the shares could be a steal.

A low valuation coupled with strong plans for the future is what I like to see. I’m also a fan of the passive income Lloyds shares will provide.

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.

Charlie Keough has positions in Lloyds Banking Group Plc. 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

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

4 penny stocks I’d love to buy for my Xmas stocking!

I'm hoping to buy these top penny stocks when I next have the opportunity. I think they could be some…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Why I believe the lagging FTSE 250 is a rare opportunity to buy cheap shares now

The FTSE 250 is showing some attractive numbers and they suggest some cracking value among businesses listed in the index.

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is this FTSE 250 TV giant one of the best opportunities on the market right now?

A staple name among UK television lovers, this FTSE 250 stock has fallen substantially. Is it time to buy the…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could this 2.5% yielding penny stock soar in 2024 and beyond?

This penny stock has struggled throughout 2023 but could the new year provide it with a much needed positive momentum…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to buy in December [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Close-up of British bank notes
Investing Articles

With £500 I’d start a passive income portfolio with these UK shares

Owning shares in an established business can be a great source of passive income. And Stephen Wright thinks now is…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I’d buy these FTSE 100 and small cap stocks in 2024 to target a second income!

This FTSE share offers a 6% dividend yield and trades on a rock-bottom P/E ratio. Here's why I'll buy it,…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s one excellent FTSE 100 value stock investors should consider buying

Sumayya Mansoor explains why this packaging giant is currently in value stock territory and should be on investors radars.

Read more »