I can’t remember much about 2023, but my online SIPP tells me I bought Lloyds (LSE: LLOY) shares on three separate occasions that year. Whatever else went right or wrong, these purchases were definitely in the plus column. Along with other FTSE 100 banks, the Lloyds share price has been bombing along, up 66% in 12 months and 230% over five years.
I picked up the shares at an average price of around 45p, so today’s price of 92p means I’ve more than doubled my money from share price growth alone. But that’s not the whole story. I’ve received five dividends so far and reinvested them all. Combined with price growth, I’m up around 120% in total.
This is exactly the kind of stock I hope to hold for life, generating growth today and income when I eventually start drawing the dividends in retirement, rather than reinvesting them.
FTSE 100 bargain
The lesson here is the rewards of buying shares when they’re out of favour. Back then, Lloyds still hadn’t fully escaped the shadow of the 2008 financial crisis. At the time, the price-to-earnings ratio was just six, far below the 15 usually seen as fair value. The price-to-book value of 0.4 also looked compelling, well below the figure of 1 or 2 seen as fair. But after such a strong run, are Lloyds shares still worth buying today?
I like buying companies that are out of favour. When a stock has already climbed like this one, I get wary. Is the best part of the share price surge over?
Lloyds certainly isn’t as cheap as it was. Today the P/E stands at 14.4 and the price-to-book ratio is around 1.1. The dividend yield has also slipped. It was around 5% when I bought the stock, today it’s 3.44% on a trailing basis. The board does have a progressive dividend policy though, and the shares are forecast to yield 3.99% in 2025 and 4.6% the year after.
Growth potential
If the Bank of England cuts interest rates in December, as many expect, that could squeeze net interest margins. On the other hand, it may revive mortgage activity and the housing market, boosting Lloyds as the UK’s biggest lender through Halifax.
Consensus analyst forecasts show a median one-year price target of 98.66p. That implies a modest gain of just under 7.5% from today, plus dividends. This fits my view that from here, growth is likely to slow. The wider economy remains fragile, and a market downturn could affect performance.
Long-term view
Investing moves in cycles but with a long-term horizon, I think Lloyds shares remain appealing. Investors might consider buying despite the strong run, particularly if a broader market dip create opportunities. Holding through volatility is part of the journey, and Lloyds has shown it can reward patience. Even if the growth stalls, Lloyds should still deliver a steadily rising income, to reward investors while they wait for the next cyclical upswing.
