The Lloyds Banking Group (LSE: LLOY) share price has had some bad years. But it’s up 30% so far in 2024. So should I be looking to move some cash to shares that haven’t done as well? Or maybe I should buy more Lloyds in the hope of an extended run?
There are reasons to be cautious. On fundamental measures, the shares do still look very cheap to me. But that’s only a part of the equation.
Forecasts put Lloyds on a price-to-earnings (P/E) ratio of 10, with a 4.7% dividend yield. And those would improve to 7.3 and 5.9% respectively, based on 2026 predictions.
Reasons to be careful
I fear the economic outlook could be making those figures look more attractive than they deserve though. I see two main uncertainties.
If these forecasts were just for straight growth, I think we’d already see investors pushing the Lloyds share price up higher. But expectations start with a 16% fall in earnings per share for 2024, before growth might resume in 2025.
Lloyds has already reported a 17% fall in first-half profit after tax. And earnings per share came in 13% behind the first half last year.
CEO Charlie Nunn spoke of the bank’s ongoing “strategic transformation“. And that’s fine. But transformations are always risky until they’ve finished transforming.
Falling interest rates
And then we have interest rates. When they fall, that’s good news for people with mortgages as it means they’ll have to shell out less each month.
But it’s less good news for mortgage lenders, and that’s what Lloyds is. It’s the biggest in the UK, in fact.
Even at the halfway stage, Lloyds was already reporting a lower net interest margin. We really don’t know what the full-year hit will be. Or what we might see in 2025, if the Bank of England (BoE) accelerates its cuts.
On that front, UK inflation dropping to just 1.7%, breaking through the BoE’s target sooner than most of us had hoped, which isn’t great news for lenders.
Wait and see?
I suspect a lot of investors will wait to see how the second half of 2024 goes before they consider buying Lloyds shares. I can’t say I blame them, as their caution might be warranted.
And it’s not as if I don’t have other attractive stocks to consider for my next investment. I also have my eye on the bumper 9.6% dividend that analysts expect from investment manager M&G. There’s risk right now, with the UK’s investors still feeling the pinch. But with my long-term hat on, I really am tempted.
And then I keep coming back to perennial dividend champ National Grid. I worry it might need another equity raise, like the one that hurt the share price this year. But I do like its defensive strength.
What to do?
Having to choose between a number of shares that I think could make truly great long-term investments… well, it’s not the worst problem to have.
And I might just have room in my ISA for some more of Lloyds.
