The Lloyds (LSE:LLOY) share price collapsed in 2008, falling from nearly 300p a share to less than 30p, such was the fear and uncertainty gripping financial markets during the global financial crisis.
The company’s subsequent recovery has been slow, hindered by regulatory changes, economic conditions, and market perceptions.
In 2009, the Lloyds share price displayed far more volatility than we’ve seen in recent years — despite plenty of ups and downs since the pandemic.
Exactly 15 years ago, Lloyds stock opened at 44.97p per share. Today, the stock’s trading for 55.38p. It’s up 23.1% over the past 15 years, equating to less than 2% per annum.
Of course, shareholders will have received some dividends during that time but, in reality, it’s a really poor return on investment.
So if I’d invested £100 in Lloyds stock back then, today my investment would be worth just £123.10. I’d probably have received around £40 in dividends during the period.
Might things be looking up?
Lloyds has endured a turbulent 15 years. Remember it’s one of the most cyclical stocks around, with 68% of its loans being UK mortgages.
It also doesn’t have an investment arm. It’s just a UK-focused lender and this means it bounces up and down with the UK economy and British politics.
However, things might be looking up. And one reason is political. Labour’s politics typically favour increased public spending and economic stimulus, which can lift stock markets by boosting consumer confidence and business investment.
Assuming the polls are correct, we will have another Labour government next month. However, with the government spending £100bn a year on debt servicing, any fiscal stimulus will likely be modest.
For cyclical stocks like Lloyds, this environment is particularly beneficial. A modest increase in stimulus, combined with the political stability associated with a potential supermajority, could certainly push Lloyds stock higher.
In the long run, increased economic activity can lead to higher loan demand, improved asset quality, and stronger financial performance.
In reality, falling interest rates will likely play a bigger role. However, politics could play an important factor, and it could positively impact sentiment in the near term.
Equally, in the near term, investors need to be wary about customer defaults.
Value play still intact
Lloyds has surged this year, but I believe the stock still represents a strong value play. Many investors, myself included, are aiming for double-digit returns across their portfolios, and Lloyds can certainly contribute to that.
The bank offers a 5% dividend yield that’s expected to reach 6% over the next two years, noting earnings improvements and a strong dividend coverage ratio.
Moreover, the bank’s earnings metrics are very attractive, especially compared to international peers. Lloyds is currently trading with a 30-40% discount to American banks.
Personally, when aggregated over the next five years, I certainly believe Lloyds stock could appreciate by around 5% annually.
That’s based on the earnings forecasts and a belief that the valuation gap will decrease as we move further away from Brexit.
