FTSE 100 dividend stock Lloyds’s share price has fallen 15%+ in 2018. Is this a top buying opportunity?

Royston Wild considers whether recent share price weakness at FTSE 100 (INDEXFTSE: UKX) firm Lloyds Banking Group plc (LON: LLOY) represents a prime buying opportunity.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s no surprise to me to see that Lloyds Banking Group’s(LSE: LLOY) share price kept on tanking last month. How could it not given the UK’s pathetic growth outlook?

The Office for Budget Responsibility (OBR) this week tweaked its GDP estimates and it now expects growth of 1.3% this year and 1.6% next year. It’s predicting pretty poor economic expansion of 1.4% in each of the following two years too.

And this is assuming that Britain can avoid falling out of the European Union next March without a trade deal, a catastrophe that is becoming ever more likely as the months progress. Expect the OBR’s fresh estimates to go through the shredder should British and European negotiators fail to reach an accord.

Revenues flatline, bad loans rise

In this depressing environment, Lloyds has seen its share price sink 16% so far in 2018, the FTSE 100 business closing at its lowest since November 2016 in recent weeks. Not even the release of better-than-expected financials last month could lift the gloom surrounding the Black Horse Bank as investors fret over what Brexit will bring (in the immediate term and beyond).

Underlying profit of £2.07bn for the July-September quarter may have sprung past analyst forecasts, but it wasn’t exactly outstanding as the bottom line remained stagnant on a year-on-year basis. In fact, when you factor in Lloyds’ colossal restructuring costs, profit before tax actually dropped 7% from the same 2017 period, to £1.82bn.

This wasn’t the only bad news either. Net income rose 5% in the first nine months of the year, but this has slowed to a crawl in recent months and it flatlined at £3bn for the third quarter. Latest data from the Bank of England does not suggest that revenues at Lloyds are set to pick up any time soon either. Its most recent consumer credit report showed annual growth in borrowing falling to 7.7% in September, the lowest rate since June 2015.

To round off another worrying release, Lloyds revealed that impairments continued to rise in the last quarter, resulting in £740m worth of cumulative charges up to September versus £538m a year earlier. And as my Foolish colleague G A Chester recently pointed out, Lloyds is sitting atop a dirty great consumer debt bubble. Brexit could be the opportunity that it’s been waiting for to burst.

6% yields? No thanks!

Glass-half-full investors would argue that Lloyds’ cheap forward P/E multiples of 7.9 through to the close of next year reflect the firm’s high risk profile. I don’t think so as the possibility of next year’s predicted 1% earnings fall is in jeopardy of undergoing scything downgrades in the months ahead.

The possibility of collapsing earnings, not to mention the prospect of booming PPI-related bills ahead of next summer’s claims deadlines, also causes me to doubt that Lloyds will have the strength to keep hiking dividends at breakneck pace. Thus yields of 5.5% and 6.1% for this year and next respectively hold little sway for me.

Lloyds is cheap, but it’s cheap for a reason. In the current climate I believe the bank can sink much, much lower, and for this reason I’m giving it a very wide berth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »