The FTSE 100 banking giant Lloyds Bank (LSE: LLOY) started 2020 at a share price of over 60p. Three months later, its share price has fallen by over 56%, to 27.8p at time of writing. This is the lowest it has been since mid-2012, an almost eight-year low.
I’ve long been cautious about buying LLOY. But now that it’s share price has crashed to such low levels, I think it’s a good time to take another look.
High dividend yield made LLOY attractive
A look at LLOY’s long-term share price trend shows that capital appreciation is unlikely to be the reason any investor has bought its shares in recent years. Its share price has been lacklustre since the great recession that was triggered in 2008 by the financial crisis.
LLOY’s dividend yield, however, has been quite attractive. Last week it was over 10%. But that’s in the past now. Early this week, the Bank of England’s Prudential Regulation Authority urged banks to reconsider dividend payouts. The Covid-19 crisis has already taken a toll on the economy and the forecasts portend a severe downturn. Hitting pause on dividends is one of the ways banks can maintain financial health. Banks responded swiftly, and LLOY was no exception. It suspended dividend payments for 2020 and cancelled the final dividend for 2019.
What’s next for the Lloyds Bank share price?
With no dividend earnings and a fall in share price, what’s in the LLOY shares for potential investors? There’s no doubt about Lloyds Bank’s dominant position. It’s one of the most traded FTSE 100 stocks and, with 22m current account customers, it’s the biggest retail bank in the UK. With a price-to-earnings (P/E) ratio of 8.2 times, it may well be priced low enough to be a profitable buy.
As is often the case in a sudden price crash, its quite likely that the LLOY share price will rise from its current low levels. But if I’m interested in long-term investments, I’d want to know that it can rise sustainably. A number of FTSE 100 stocks’ share price increases have been rewarding for investors, with their broadly rising trajectory. If LLOY can finally get on a rising curve again, it may well be a worthwhile investment.
Wait to invest
But for that, its fundamentals need to be strong. Banking activity is impacted by economic cycles, and the present times are no different. Banks’ financials will be impacted by the downturn in 2020 and possibly even in 2021 from the way things appear now. It may be that the impact on LLOY is manageable enough, but going by the current scenario, I’m not holding my breath. I’d wait for better times before considering investing in Lloyds Bank.
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Manika Premsingh 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.