Lloyds shares are near 50p, but I think they’ve got a lot further to go

Lloyds shares are gaining momentum and this Fool thinks they’ll keep rising. Here he explains why and explores if he should buy more stock.

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Lloyds (LSE: LLOY) shares have been trending upwards. An 18.9% rise in the last month means they’re edging ever closer to breaking the 50p barrier.

That makes a change. In recent times, Lloyds’ performance has been rather dire. Don’t get me wrong, I’m bullish. However, I could see why some people may not share my opinion.

Nevertheless, its recent surge has caught my attention. So much so that I’m considering buying some more shares.

A healthy business

Lloyds is a well-known brand with a healthy balance sheet. This is the sort of company I want to own in my portfolio.

Its CET1 ratio for last year was 13.7%, ahead of its ongoing 13% target and previous target of 13.5%. Its strong balance sheet is down to a surge in its earnings, fuelled by factors such as higher interest rates. For example, last year pre-tax profits were the highest they’ve been for over two decades while net income was up 3% from 2022 to £17.9bn.

Time to give back

As such, the business is in a strong position to reward shareholders. Last year it spent £2bn on share buybacks. It’s already announced a new scheme, adding up to a similar amount for this year. I suspect that’s one of the key drivers behind its share price rise.

Alongside that, the stock boasts a 5.5% yield. It’s never a guarantee that dividends are paid. But covered comfortably by earnings, I’d expect the bank to pay out.

The next PPI?

Some investors have been spooked by a recent scandal surrounding Lloyds and its involvement in unfair motor finance practices. Martin Lewis, the personal finance campaigner, has floated the idea that the charges could erupt to a size similar to the famous PPI scandal.

Lloyds set aside £450m last year as a result of the investigation. But there’s always the chance that could end up being a lot more. Either way, I’m a long-term investor, so short-term issues like this aren’t of too much concern.

More to come

Of course, I’m not disregarding this. It could evolve into a major issue. However, I’m fairly confident that it won’t. Even so, I’d still happily buy more Lloyds shares today if I had the cash.

It’s unknown when interest rates will begin to fall. But it seems the market is expecting it to happen at some point later this year. No doubt this could dent profits as higher rates allow the business to charge customers more when they borrow. That said, it’s unlikely rates will reach anywhere near the low levels we’ve become used to for a while.

Lower rates also provide more stability to the housing market. As the UK’s largest mortgage lender, this is important for Lloyds. Halifax’s latest house pricing index showed property prices have been on the rise for the last five consecutive months. Should this trend continue, the business will be provided with a further boost.

With that in mind, it’s factors such as these that lead me to believe we may just be seeing the start of a surging Lloyds share price in the times to come. I’m keen to increase my position while its shares are still below 50p.

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.

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