The Lloyds (LSE: LLOY) share price has not been able to escape this year’s market sell-off.
Year-to-date shares in the bank have fallen about 46% excluding dividends as investors have become increasingly concerned about the UK’s economic outlook.
However, following this decline, shares in the lender appear to offer a wide margin of safety. But is now the right time to add the stock to your portfolio or could the Lloyds share price fall further?
Lloyds share price value
At first glance, the Lloyds share price looks cheap. It is changing hands at one of the lowest levels of the past decade. The stock now looks even cheaper than it was at the dark days of the financial crisis.
This seems unwarranted. Lloyds is much stronger than it was back in 2008. What’s more, the financial system as a whole is not on the verge of breaking down today, as it was in the financial crisis.
That being said, at present, the outlook for the economy is exceptionally tough. We’ve not experienced a period of disruption as severe as this in recent memory.
However, the economy has always experienced booms and busts. On every occasion, the economy has come back stronger over the following few years and decades.
This suggests that while the near term outlook for the Lloyds share price is uncertain, over the long run, operating conditions for the FTSE 100 bank are very likely to improve.
As such, buying the bank at this low level could lead to high returns in the long run.
Future income champion
As the lender has recently cancelled its dividend for the foreseeable future, investors are unlikely to achieve any income from the Lloyds share price in the near term.
Nevertheless, during the past few years, Lloyds has become a FTSE 100 income champion. This suggests that when regulators allow UK banks to resume dividends, investors could be well rewarded.
Of course, at this point, it is not very easy to tell what sort of returns investors could achieve from the Lloyds share price over the next few years.
But the company’s past performance gives us some guidance.
For example, City analysts were forecasting a total dividend of 3p per share for the lender in 2020. It may be some time before this level of income returns, but if it does, investors buying the stock today can look forward to a 9% dividend yield.
In 2019, Lloyds distributed 3.37p per share. At this level of income, investors buying today would see a yield of 10%.
There’s no guarantee Lloyds will resume its dividend plans this year, so this is not guaranteed. Still, these numbers show just how attractive the risk/reward ratio is for the stock after recent declines.
So, while the Lloyds share price could fall further in the near term, longterm investors may be able to generate market-beating returns buying the lender today.
Rupert Hargreaves owns no share 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.