5% yield and a P/E of 7.3! Are Lloyds shares still unmissable despite a 25% surge?

Harvey Jones got his timing just right when he loaded up on Lloyds shares a year ago. Yet he still thinks there’s a buying opportunity here.

| More on:
Silhouette of a bull standing on top of a landscape with the sun setting behind it

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.

Lloyds (LSE: LLOY) shares have jumped 25% in the last 12 months. Usually, when a solid FTSE 100 blue-chip like this one enjoys a strong run, I’m a bit wary. Am I the muggins who buys just as the upwards trend peaks?

I prefer to buy shares when they’re out of favour, and I know for sure that I’m not buying at the late stage of a rally.

I’m particularly wary given that we’re talking about the Lloyds share price here. It’s gone nowhere slowly since the financial crisis, with every apparent recovery proving yet another false dawn.

Bargain FTSE 100 stock

With that in mind, I loaded up on its shares in June and September last year, when nobody wanted to know. I’m delighted I did. My stake’s up 33.75%, including the two dividend payouts I’ve received so far. That’s not a bad start.

I bought Lloyds shares when they were trading at around six times earnings and yielding just over 5%. In other words, a bang-on bargain. I decided that after years in the doldrums, the worst might just be over.

The dividend was back. The company was making billions in quarterly profits. Markets were being perverse and ignoring this, I decided. I also thought they would change their tune once interest rates started to fall.

This would finally inject some joy back into the economy, and make Lloyds business and retail customers feel better off. It might also light a fresh fire under the housing market.

Against this, I had to weigh the danger that lower rates would squeeze Lloyds’ net interest margins – the difference between what it pays savers and charges borrowers. Given that debt impairments were also likely to reduce, I wasn’t too concerned.

Super dividend income

One year on from my first Lloyds purchase and we’re all still waiting for that interest rate cut. We may have to wait until August. Or possibly September. Yet Lloyds is up, as investors anticipate that happy day. This doesn’t mean the stock will go gangbusters. Markets are forward-looking, and have largely priced that in. It should help though.

I love to average down on a stock, topping up my stake at the new lower price. Normally, this would rule out Lloyds. However, I can’t exactly say it’s overpriced today, trading at a modest 7.31 times trailing earnings.

The dividend’s still juicy, at 4.99%. This is forecast to rise to 5.24% in 2024, then 5.83% in 2025. That’s a high and rising income stream.

I accept the recent Lloyds recovery could be yet another false dawn. I’m also concerned about the Financial Conduct Authority probe into whether banks overcharged car buyers for finance. Lloyds has set aside £450m to cover the potential bill. Nobody knows how big it will be (or if there will be a bill at all).

I still think Lloyds shares are appealing at today’s price. If I didn’t already own rather a lot of them, I’d cheerfully buy more today.

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.

Harvey Jones 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

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »