There was little to love about the Lloyds (LSE: LLOY) share price in the years after the financial crisis. It basically flatlined while a string of embattled executives struggled to clear up the mess left behind by the big bank greed.
Lloyds shares are still a long way from their glory years. In 1999, they topped 475p. Today, I can buy them for just 60.4p each, and that’s after a strong run. Yet it’s now one of my favourite portfolio holdings, and I’m liking it more by the day.
It helps that I wasn’t holding Lloyds shares when the banking crisis struck. So I have no bitter, personal memories. I only added them to my self-invested personal pension (SIPP) in June last year and topped up my stake in September. My average purchase price was 43.6p.
FTSE 100 favourite
I’m up 39.08% so far, which rises to 46.4% with dividends reinvested. That’s the kind of return I’d normally associate with a fast-growing smaller company. Over 12 months, the Lloyds share price is up 33.82%. What’s not to love here?
I bought Lloyds stock because it was cheap, trading at six times earnings, while yielding north of 5%. Yet it was making huge profits: £7.5bn in full-year 2023. Investors refused to be seduced and understandably so. They’d been hurt before. I hadn’t and dived in.
Many investors were also down on the UK, but I saw brighter times ahead, as inflation eased, the economy skirted recession and house prices stabilised.
Today, Lloyds shares are pricier but still look good value to me at 8.09 times earnings. The trailing yield has fallen to 4.55%, but it’s forecast to hit 5.4%. Dividends are never guaranteed but this one looks more solid than most, covered exactly twice by earnings.
Dividends to die for
I don’t expect Lloyds shares to keep rising at their recent speed. Falling interest rates will be a mixed bag for the big banks. While this will boost the economy and mortgage market, it will also squeeze net interest margins. Yet I think there’s room for growth.
I don’t love Lloyds shares the way I love my kids, obviously. At heart, it’s a transactional relationship. Yet I’m hoping we can go the distance, and this will be a portfolio holding for years and with luck, decades.
And while I say that to every stock I buy, I really mean it with Lloyds. Even if the share price slows, or retreats, I should still get my dividends. I’ll reinvest every single one to buy more stock, and maybe take them as income after I retire
Lloyds has let investors down before, but it’s changed its ways. It’s no longer playing fast and loose with other people’s money, but is a far more solid proposition.
That said, I’m holding my breath to see whether alleged motor finance mis-selling becomes another PPI scandal. Even if it does, I’ll stand by my stock. I think Lloyds will deliver more ups than downs. Even during the bad times, I expect those dividends to keep coming through. I’d buy more but I already have a pretty big stake in its future.
