Should I leave my money in Lloyds shares until the decade’s out?

I’ve certainly been guilty of moving my money around too much, so should I just leave my investments in Lloyds shares where they are for the foreseeable future?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

artificial intelligence investing algorithms

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It can be tempting to buy Lloyds (LSE:LLOY) shares when they’re around 40p, and sell when there around 50p. After all, the stock appears to have fallen into something of a pattern.

But investing’s normally about taking a long-term view on a stock with strong fundamentals. So should I just leave my investments in Lloyds until the decade’s out?

Sensible investing

There’s a clear difference between investing and trading when it comes to navigating the market. Investing involves taking a long-term approach, focusing on steady growth over a period of years. It’s like planting a seed and nurturing it for a fruitful harvest in the future.

Trading, on the other hand, is all about short-term gains. It’s more about capitalising on price movements within minutes, days, weeks, or even months. It’s more akin to riding a wave, trying to catch the perfect moment of entry and exit.

Ultimately, I believe trading should be left to the professional, while the rest of us take long-term positions on stocks we believe in.

Do I believe in Lloyds?

I believe Lloyds is one of the strongest investment opportunities on the FTSE 100. Firstly, it offers a very attractive 5.44% dividend yield. That’s far above the index average and it also means I’m not looking for exceptional share price growth.

If I’m aiming for double-digit growth in my portfolio as a whole, I’d want to see the Lloyds share price push up at least around 4.6% annually. Coupled with the dividend, that would lead to double-digit returns.

I’d also suggest Lloyds’ dividend looks very sustainable. Over the last 12 months, the dividend was covered 2.75 times by earnings. That’s far above the benchmark for safety — which is generally two times for cyclical industries.

Next, do I think the Lloyds share price can appreciate in value from here? Well, Lloyds trades at 7.5 times forward earnings. Compared to recent years, that’s a little expensive, but it reflects the fact that 2024 is likely to be a little less profitable due to fines falling within these 12 months.

However, moving forward, the price-to-earnings (P/E) ratio falls to 6.8 times in 2025, based on projected earnings, and 5.9 times in 2026. It’s unlikely that this pace of earnings growth is sustainable through to the end of the decade, but it’s certainly positive to see earnings grow so quickly in the medium term.

Finally, when we compare these ratios to US banks, some of which, notably JPMorgan, trade with P/E ratios that are double as high, it becomes clear that Lloyds is trading at a discount. Strong earnings growth, and a discount versus international peers… it’s certainly compelling.

The bottom line

Lloyds is a cyclical stock and that means it can be volatile, especially when we’re experiencing tough economic conditions like we have today. After all, we’re still not out of the woods yet from an economic perspective.

As such, it may pay me to just try and forget about my Lloyds shares and trust in the strong earnings projections, attractive valuation and well-covered dividends. I might just lock my Lloyds shares away until 2030.

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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Fox 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.

More on Investing Articles

Investing Articles

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

This FTSE stock tanked 58% last week. But there could be some good news!

Shares in John Wood Group plunged after the FTSE engineering stock released a trading update. But our writer thinks there…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£1,000 invested in Tesla shares 2 months ago is now worth…

Tesla shares have soared over the last decade. However, since 17 December 2024, they have lost more than a quarter…

Read more »

US Stock

Could Trump’s tariffs cause a stock market crash?

Jon Smith looks at the recent whipsaw movements in the markets relating to US trade policy and talks through stock…

Read more »