After the last couple of years’ rocketing share price, I was half-wondering if Lloyds (LSE: LLOY) shares were ever going to fall again! The stock nearly tripled in just a couple of years – not to mention some above-average dividends thrown into the bargain. I thought the rise and rise of the FTSE 100 bank looked unstoppable.
Then 2026 came along. Owing to a number of geopolitical events, the share price has taken a tumble. The dip from top to bottom this year was over 20%! Although it has clawed back a few of the gains, you can still buy a Lloyds share today for below the £1 mark – for 97p a pop as I write at midday on Friday (24 April). This could be a golden chance to pick up cheap shares in a company on the rise, couldn’t it?
Why did the share price fall?
Before answering whether this could be a great buying opportunity, it’s worth pointing at what was happened this year. The biggest driver of the falling Lloyds share price is the conflict in Iran, which has two main consequences.
The first issue is the chances of stagflation and a stuttering economy. The Lloyds tagline of ‘Helping Britain Prosper’ hints at the inseparable link between the bank and the UK economy. Its domestic exposure means any economic weakness resulting from the war in the Middle East means the picture is a lot less rosy than it was a few months ago.
A second issue is that inflation (should it come) could result in higher interest rates. When borrowing becomes more expensive, people default on their loans. These impairments hurt the bottom line and can be disastrous on a large scale. With the Bank of England already rumoured to be looking at a rate hike this year, then it makes sense that the Lloyds share price has felt the brunt of it.
Is it a buy?
On the other hand, higher interest rates can be a boon to banks. When borrowing is more expensive, there’s more flexibility to increase margins. That’s one of the reasons why Lloyds has been increasing earnings in recent years.
If earnings continue to rise, then we may see a continuation of a generous share buybacks programme. Buybacks can’t be underestimated.
When people think of the income from a FTSE 100 bank, their eyes often go to the dividends – Lloyds is looking at a forward dividend yield of 4.4%, which is decent but nothing incredible. But using cash to buy shares and take them off the market exerts upward pressure on the share price. This is one (albeit far from the only) reason the share price nearly tripled in recent years.
Here’s a last bonus: banks are looking like one of the sectors set to benefit most from AI. Lloyds is expecting the use of artificial intelligence to add £100m in value this year alone and who knows how much that could grow to in the future? I think the stock is worth considering.
