At last! The Lloyds (LSE: LLOY) share price finally appears to be living up to its potential. It’s taken long enough.
The FTSE 100 bank’s shares have looked like a screaming buy for years, only to go nowhere. It was beginning to look like the ultimate value trap. Cheap, high-yielding, profitable, but hopeless.
I kept the faith and invested £2,000 on 2 June with the stock trading at 45.05p and another £2k on 8 September when it dipped to just 40.89p each. Then I sat back and waited to see whether the Lloyds share price would ever show signs of life.
This FTSE 100 stock is up
And it has! Wonders will never cease. The share price is up 25.53% over the last six months (although it’s still down 7.83% over one year).
My £4k investment is now worth £4,957, including dividends, a rise of almost 24%. I love buying cheap shares (when it works).
So how did Lloyds suddenly turn into an index-beating growth stock? The process started on 16 February, when FTSE 100 rival NatWest Group posted better-than-expected 20% rise in pre-tax profits.
NatWest rocketed, and so did Lloyds as investors anticipated similar good results when it reported on 22 February. Lloyds did even better, announcing a 57% jump in full-year profits and a £2bn share buyback. The board also hiked the 2023 full-year dividend by 15%, to 2.76p per share. Happy days.
It’s been on the up ever since. After ignoring good news for so long, investors have flipped and are choosing to block out the bad news instead.
A top dividend play
Lloyds has set aside £450m for the regulatory probe into UK motor financing. Consumer champion Martin Lewis has been talking up as a scandal to match PPI mis-selling, which cost Lloyds more than £21bn. Are investors worried? Apparently not.
They also seem prepared to overlook the fact that Lloyds’ net interest margins – a key measure of banking profitability – dipped from 3.08% to 2.98% in Q4. Margins are likely to fall further when the Bank of England starts cutting interest rates, but again, investors don’t seem unduly concerned.
A lot can go wrong with the Lloyds share price but I’m not particularly worried. First, I’ve now got a cushion against any drop. Second, I plan to hold the stock for years and years, so short-term volatility is neither here nor there.
I’ve got a lot of dividends to look forward to, If I’m lucky, with a 2024 forecast yield of 5.67% rising to 6.26% in 2025. Lloyds isn’t as cheap as it was, trading at 9.22 times forward earnings. That’s hardly excessive though. I’m sorely tempted to buy more shares at today’s price of 52.68p. No way I’m selling. Who cares if something goes wrong? Over the longer run, I’m hoping a lot more will go right.
