Why I’d buy the Lloyds share price and hold it for life

Keeping it simple with Lloyds Banking Group plc (LON: LLOY) could pay off, says Roland Head.

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As investors, the internet gives us access to more information and more opinions than ever before. When faced by all of this, it’s easy to believe that to do well in the markets, you have to be very clever indeed.

I’m not so sure. The City is full of really clever people with access to even more information than we have. But many actively-managed funds lag the market, and very few consistently outperform it.

KISS

These days, what I aim to do when investing is to avoid trying to be too clever. Instead, my goal is to follow the classic design principle, Keep It Simple Stupid — or KISS.

The phrase is said to have originated with an engineer working for US military aircraft firm Lockheed in the 1960s. What it means is that a well-designed system should be as simple as possible. Needless complexity means there’s more to go wrong and will be harder to fix.

I reckon KISS could be a good ethos for many investors. In this piece, I want to highlight two FTSE 100 dividend stocks I rate as good KISS buys.

Why Lloyds?

Ten years after the financial crisis, banking stocks are still a tough sell for many investors. It’s easy to see why — many banks nearly went bust in 2009.

They’ve since been forced to pay out billions in misconduct charges and PPI compensation. Lloyds Banking Group (LSE: LLOY) alone has forked out a staggering £19,425m in PPI payouts.

Numbers like this are hard to believe. But they’re now mostly in the past. And the reality is, as far as anyone can tell, regulatory changes have made banks much safer and better-funded than they were a decade ago.

It’s worth remembering that the 2008 financial crisis was the worst and biggest economic shock to hit the UK since the depression of the 1930s. Historically, this kind of event has been rare. Although profits tend to fall in recessions, large banks such as Lloyds have generally been reliable income investments.

In my view, Lloyds looks reasonable value at the moment. At the time of writing, the bank’s stock was trading on 7.3 times 2019 forecast earnings and at a premium of about 10% to its tangible net asset value of 53.4p. For a profitable, dividend-paying bank, I don’t think that’s expensive. With a forecast dividend yield of 6%, I’d be happy to buy today and hold for life.

You can be sure of Shell?

The other KISS stock I’d like to suggest is a company I already own myself, Royal Dutch Shell (LSE: RDSB).

Sentiment towards the oil and gas giant is understandably mixed, given concerns over climate change. But demand for oil-based fuels isn’t going to dry up tomorrow. And Shell is now making concrete and public plans for the next stage of its evolution towards gas, chemicals and renewables.

This strategy is expected to generate very high levels of free cash flow. As my colleague Rupert Hargreaves explained, it looks like Shell may return half of its current market-cap to shareholders by 2025.

The shares may get cheaper at some point in the future. But I think the stock’s 5.8% yield is worth having and suggests a reasonable valuation. I remain a long-term buyer and hope to add more over the coming years.

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.

Roland Head owns shares of Royal Dutch Shell B. 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.

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