The Lloyds Banking Group (LSE:LLOY) has spent most of 2023 below 50p. Since the banking crisis in March, investors have been able to get two for £1 and still have change left over.
One question for investors is whether or not the stock will break through the 50p barrier in 2024. I think, though, there are two good reasons for existing shareholders to hope it doesn’t.
Warren Buffett
According to Warren Buffett, most investors hope that the price of stocks they own will go up. And this, according to the Berkshire Hathaway CEO, is exactly the wrong attitude to have.
As an investor, Buffett says there are two reasons for hoping the price of share he owns goes down. One is that he might want to buy more and the other is that the company might be looking to repurchase its stock.
A good example is Apple, which accounts for around half of Berkshire’s stock portfolio. During the first half of the year, the share price increased 55%, from $125 to $193.
For someone who might want to buy more shares, that’s bad. It means that a $1,000 investment would only buy five shares at the start of July, whereas it would have bought eight at the start of the year.
Apple is also a company that spends a significant amount on buybacks. The point of this is to bring down the outstanding share count, but this is much more effective when the share price is lower.
So far in 2023, the company has spent around $58bn on repurchasing stock and reduced its share count by 1.8%. If the share price hadn’t risen, though, the company could have reduced the number of shares by more.
UK banks
Exactly the same considerations apply to Lloyds. A share price below 50p represents a great chance to add to an existing investment, but even those who don’t plan on doing this stand to benefit if the stock stays down.
Like Apple, Lloyds has been buying back significant amounts of stock recently. And there’s a meaningful difference between doing that with the share price at 45p compared to 50p.
In 2022, Lloyds spent around £2bn on share buybacks. With the share price at 50p, that’s enough to bring down the share count by 4bn, but at 45p per share, the company can repurchase 4.4bn shares.
The more the share count comes down, the more the value of each remaining share increases. This means there’s a benefit to investors if the Lloyds share price stays where it is.
Of course, it’s better for shareholders who are actively looking to sell in the near future if the price goes up. But investors with a long-term view should hope the stock doesn’t make it above 50p.
What will 2024 bring?
Looking ahead to 2024, I think it’s likely that Lloyds will continue to repurchase its shares. That means investors have a reason to hope the share price stays below 50p for as long as possible.
Since the company buying back its stock increases the value of the remaining shares, I think the share price will get pushed above 50p eventually. But shareholders should hope this doesn’t happen in 2024.
