Like 2.3m others, I own Lloyds Banking Group (LSE:LLOY) shares. But of all the stocks in my portfolio, I find it the most frustrating. Sometimes I have an overwhelming desire to sell, thinking that my money could be better deployed elsewhere. At other times I want to hold the share forever.
Currently, I’m feeling a little more love for the stock.
A good run
That’s because, since releasing its 2023 results on 22 February, the stock’s risen by 19%. It’s currently close to its 52-week high, with investors seemingly impressed by the financial performance of the bank and its prospects.
The 2023 accounts reported a profit after tax of £5.5bn, a 41% increase, compared to 2022. The £1.6bn improvement was helped by a £1.2bn reduction in the charge made for bad loans. But given the gloomy economic backdrop, this surprises me.
However, on a call with analysts, the bank’s Chief Financial Officer, William Chalmers, claimed that Lloyds has an above-average asset quality, which means it isn’t as vulnerable as some of its peers during an economic downturn.
Investors also appear to have brushed aside concerns that the current investigation into the misselling of car finance could end up costing the UK’s banks as much as the PPI insurance scandal.
Lloyds has made a provision of £450m to cover costs and possible compensation. Some believe it could end up having to pay out over £3bn.
When questioned about the amount set aside, Chalmers noted: “We have also been party to a series of county court cases, the majority of which have decided in our favour.”
But despite all this positivity, my feelings of frustration started to emerge again when I realised that the share price is down 17% compared to March 2019. It hasn’t been above 60p since the early days of 2020.
Shareholder returns
But I’m able to put these emotions to one side because my principal reason for holding the stock is for its healthy dividend.
That’s why I’m sure I’ll love the stock on 21 May, when I’m due to receive the 2023 final dividend of 1.84p a share, an increase of 15% compared to its 2022 final payment.
In respect of its 2024 financial year, analysts are expecting a payout of 3.02p. If correct, the shares are yielding 5.4%. This compares favourably to the current FTSE 100 average of 3.9%.
And the ‘experts’ are predicting further increases to 3.39p for 2025, and 3.78p for 2026.
Disappointingly, the bank’s planning to spend £2bn before 31 December buying its own shares. I’d rather it gave me an additional 3.15p a share this year.
Of course, dividends are never guaranteed.
Final thoughts
Love them or hate them, banks are a vital part of any economy. And that’s how I currently feel about my Lloyds shares — they are an essential stock in my ISA.
With a current market-cap of £33bn, the stock trades at six times its 2023 earnings. According to GuruFocus, the 2013-2023 median price-to-earnings ratio was 7.44. If the bank could achieve this valuation, its share price would be 24% higher.
I’m therefore hopeful of some further capital growth over the next few months. And if the recent good run does continue, I won’t have a reason to hate my Lloyds shares.
