Up 31% since 13 February, Lloyds shares are on fire

To my surprise, Lloyds shares have beaten the FTSE 100 over periods ranging from one month to one year. But this stock might still be too cheap today.

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So far, 2024 is shaping up to be positive year for investors. The US S&P 500 index is up 10% this calendar year, beaten by the Japanese TOPIX index, which has surged 15.5% since 2023. Meanwhile, Lloyds Banking Group (LSE: LLOY) shares are going great guns lately.

Lloyds stock slumps then soars

The Lloyds share price got off to a poor start to 2024. After closing at 47.71p on 29 December, it dived to close at 41.19p on 13 February, losing 15.8% along the way.

But since Valentine’s Day, the Black Horse bank’s stock has staged a major recovery. As I write — before the market close on Thursday, 4 April — the share price stands at 53.84p, valuing this business at £34.3bn.

Thus, the shares have surged by 30.7% since their mid-February low — a pretty handsome return from a ‘boring, old-school’ Footsie stock. Here’s how Lloyds shares have performed over six timescales:

Five days4.6%
One month13.6%
Six months27.7%
2023 to date12.8%
One year11.9%
Five years-13.5%

This stock has produced positive returns over five periods, ranging from one week to one year. Even better, Lloyds shares have beaten the wider FTSE 100 index over all five timescales.

However, there is one setback for shareholders: the near-14% decline in the bank’s value over the past half-decade. This compares poorly with a 7.1% gain for the Footsie in this period.

We own Lloyds for income

My wife and I own Lloyds shares in our family portfolio. We paid 43.5p a share for our holding, buying in June 2022. To date, the value of our stake has increased by 23.9%.

Note that the above figures exclude cash dividends, which contribute a large slice of the returns from UK shares in the long run. And we bought Lloyds stock mainly for its market-beating cash payouts.

Lloyds’ dividends per share totalled 2p for 2021, 2.4p in 2022 (up 20%), and 2.76p in 2023 (up a further 15%). Thus, this payout has leapt by 38% in two years, which is most welcome.

Lloyds might still be a bargain

So far, our investment in Lloyds has pretty much lived up to my (modest and conservative) expectations. Nevertheless, we have no plans to sell our Barclays shares for the forseeable future.

Why? Because I think that the shares are fairly cheap, both in historical and geographical terms. They trade on a multiple of 7.2 times earnings, producing an earnings yield of 13.9%.

Also, they offer a dividend yield of 5.1% a year, well ahead of the FTSE 100’s yearly cash yield of 4%. In addition, this cash stream is covered 2.7 times by trailing earnings, which I see as a wide margin of safety.

The bad news is that analysts expect UK bank earnings to be lower this year than last. Economists expect falling interest rates, slower credit growth, and rising bad debts to depress banks’ profits and cash flows. That said, balance sheets are very strong, allowing banks to ride out this downturn.

Therefore, we intend to keep tight hold of our Lloyds shares for the long term, while ignoring their price volatility in the short term!

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.

Cliff D’Arcy has an economic interest in Lloyds Banking Group shares. The Motley Fool UK has recommended Lloyds Banking Group. 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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