Lloyds (LSE: LLOY) shares have taken a beating in the last few days, along with the rest of the FTSE 100. The Lloyds share price is down 7.75% in the last week, and that’s despite climbing 1.89% this morning.
Plenty of other blue-chips are down after recent volatility, and I’m hoping to buy the biggest bargains at reduced prices. Lloyds is high on my shopping list. Despite recent troubles, it’s still had a brilliant year.
FTSE 100 bargain
Over the last 12 months, the Lloyds share price has soared 27.86%. That puts recent volatility into perspective. Loyal investors are still comfortably ahead.
The total return is closer to 33% once dividends are included. The stock’s trailing yield is an attractive 5%, comfortably covered 2.8 times by earnings. That gives plenty of scope for the board to increase payouts.
In 2022, Lloyds hiked its dividend per share by 20%, from 2p to 2.4p. In 2023, it hiked it to 2.76p. That’s a 15% increase.
Analysts reckon the dividend will grow by an average of 12.4% over the next three years. So I’m not just in line for a high rate of passive income, but a rising one. Dividends aren’t guaranteed, of course, but this looks more secure than most.
It will look even more attractive every time the Bank of England cuts interest rates. That’ll squeeze bond yields and savings rates, without directly impacting the Lloyds yield.
Today, I hold 9,657 Lloyds shares. I’d happily double that to generate long-term dividend income and share price growth.
The shares still look cheap, trading at 7.3 times earnings. That’s roughly half today’s FTSE 100 average price-to-earnings ratio of 14.3 times.
Dividend income and growth
However, it’s not as cheap as it was. The price-to-book ratio has crept up from 0.74 to 0.9 over the last year. Let’s see what the chart says.
Chart by TradingView
There are other worries. Lloyds has set aside £450m to cover a potential motor finance mis-selling scandal. This may be nowhere near enough. We may not know until next year.
On 6 August, analysts at Citi downgraded Lloyds to neutral after pointing out that it was the only big UK bank to fall short of pre-provision profit forecasts. This followed RBC Capital Markets’ decision to downgrade Lloyds from ‘outperform‘ to ‘sector perform‘, after the shares hit its 60p price target. That was before the recent dip, of course. Today, the stock trades at 56p.
The share price is unlikely to jump another 25% over the year ahead. No stock goes up in a straight line. However, I should still get my dividends, and they’ll be worth more than last year. I’ll reinvest it right away.
If the UK economy springs into life and investors feel more optimistic, the Lloyds share price could climb another leg upwards. That may take time, but given I’m planning to hold this stock for 20 years or more, that’s exactly what I’ve got.
Given my long-term view, it’s still a screaming buy to me. I’ll take advantage of the dip and add to my stake.
