The Motley Fool

Is this the cheapest the Lloyds share price is ever going to get?

By mid-afternoon Thursday, the Lloyds Banking Group (LSE: LLOY) share price sat at a new 52-week low of 46.42p (and might drop even lower before the end of trading).

Since coronavirus-led fears precipitated the latest stock market sell-off, Lloyds shares have declined faster than the FTSE 100. The shares have not been this cheap since as long ago as 2012, so we’re looking at an eight-year period of stagnation.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Have the shares really, finally, fallen as low as they’re going to? As a long-suffering Lloyds shareholder, I keep hoping so, but my hopes keep getting dashed. And, as my Motley Fool colleague Jonathan Smith has suggested, there’s a fair chance the Lloyds share price will fall further in the coming months.

Oversold

But I still see the shares as oversold. What we’re looking at is a combination of factors that are negatively affecting the outlook for Lloyds. It is facing an uncertain future as a UK-centric retail bank, especially as there’s a serious risk that Boris Johnson will fail to secure a good post-Brexit trade deal.

But there’s nothing new there, and investors fully understood that when the shares were trading above 55p just a few weeks ago.

The bank’s full-year results, released on 20 February, perhaps looked a little disappointing. But a big part of the hardship came from the costs of the PPI mis-selling scandal. There was an extra £2.45bn hit, taking the total to a staggering £21.9bn. That was far worse than originally feared, and it led Lloyds to call off its share buyback in 2019 — it had returned £1.1bn that way in 2018.

Vision

Lloyds’ failure to anticipate the full scale of PPI costs, leading to it paying out more cash to shareholders than might have been prudent, will surely have raised doubts over the board’s clarity of vision. It did with me.

But again, there was really nothing unexpected there, and the share price actually blipped up slightly on results day. That market reaction wasn’t a ringing endorsement for the future of Lloyds, but nor was it a condemnation of the outlook.

That brings us back to the coronavirus, as it’s really the only new development that’s coinciding with the latest share price weakness. Nobody really has any idea how bad the end result will be, but we can be pretty sure we’re past any possibility of the UK preventing a significant outbreak. What might that mean for Lloyds?

Dividend

I reckon it’s all down to fears for the dividend. While confidence in the dividend remained reasonably high, I think that was helping maintain some support for the share price. But I’m seeing a straw and camel’s back situation here, and any virus-led banking slowdown could be the final factor that leads Lloyds to cut its payments.

But saying that, I still don’t see it happening. I expect Lloyds will do its utmost to avoid over-reacting to short-term threats, and will be very keen to maintain its dividend unless we genuinely see a long-term downturn.

Meanwhile, the forecast 2020 dividend would yield 7.6% on the current share price. I’m happy to keep taking that.

A top income share with a juicy 5% forecast dividend yield

Income-seeking investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!

But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!

Alan Oscroft owns shares of Lloyds Banking Group. 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.