Lloyds‘ (LSE: LLOY) shares have had a brilliant run. They’ve more than doubled in the last three years, with dividends on top. Now they’re slipping (along with much of the FTSE 100) as investors fret about the war in Iran. Is this a chance to buy at a lower price?
I bought in 2023, and my timing was spot on. I’m up around 130%, with dividends reinvested. That’s far better than expected from a bank often dismissed as a low-growth play, offering a steady stream of income but only modest growth potential.
Lloyds focuses purely on the UK these days. It restricts itself to the nuts and bolts of everyday banking, such as mortgages, savings and business lending. The bank lacks international flair, but generates serious profits and, after rebuilding since the financial crisis, is geared towards rewarding shareholders.
Growth, income and buybacks
Full-year results on 29 January now feel a long time ago, given current events. Lloyds reported a better-than-expected 12% rise in profits to £6.7bn and set out a confident outlook. The board was targeting a jump in tangible return on equity from 12.9% to 16% by 2026. It also announced a £1.75bn share buyback and lifted the final dividend by a generous 15% to 2.43p per share.
At the time, the concern was that falling interest rates would squeeze net interest margins, the spread between bank lending and deposit rates. That’s no longer an issue, with rates more likely to climb than fall. That could sustain margins but investors have plenty more to worry about today.
As the UK’s biggest mortgage lender (through subsidiary Halifax), Lloyds is exposed to higher borrowing costs and weaker housing demand. A slowdown could increase defaults, forcing it to set aside more for bad loans.
Lloyds’ share price has fallen 9% over the past month. That’s pretty modest. Rival Barclays is down 16%, as its exposure to higher-risk areas like private credit make it more volatile. Lloyds may look dull, but in this climate that may count in its favour. Over one year, its shares are still up 30%.
Lower valuation, higher yield
Before the Iran conflict, Shore Capital suggested Lloyds’ shares were fully valued after their strong run. They look more reasonable now. The forward price-to-earnings ratio for 2026 is 9.7. Similarly, the yield was drifting lower as the share price climbed.
Today, the forward 2026 yield’s 4.5%, rising to a handsome 5.3% in 2027. Of course, these aren’t guaranteed. Lloyds may struggle to hand investors another big dividend hike if profits are hit by today’s turmoil.
The shares go ex-dividend on 9 April. Investors buying before then will qualify for the 2.43p final payout, due on 19 May. Should they act?
At around 95p a share, a £5,000 investment would buy roughly 5,263 shares and generate about £127 from that payment alone. That’s just the starting point, with two dividends paid each year. The recent dip looks like a chance to pick up Lloyds at a more attractive valuation and improved yield.
The short term looks incredibly volatile, but for long-term investors I think Lloyds is well worth considering at today’s price.
