The Lloyds Bank (LSE: LLOY) share price is at 26.1p as I write this Friday afternoon. If it ends the day at this level, this will be the lowest level it has hit in one year. For anyone who’s been following LLOY’s share price movements in the recent past, this shouldn’t be too much of the shock. The bank has been hit by many challenges in the recent past. Still, when the share price is this low, it raises the question – should I buy this FTSE 100 share?
Lloyds Bank share price sensitivity to dividends
I’d be cautious, is my short answer. Here’s why. Let’s start with the overall environment. That the stock markets have been hammered this year is no secret. But the Lloyds Bank share price didn’t hit sub-30p levels till a week after the FTSE 100 reached its lowest point.
This tumble coincided with its dividend suspension announcement. The LLOY share price has shown side-ways movements since, even while many other FTSE 100 shares are touching all-time highs. My point is, that if the core reason for investor interest in LLOY was dividends, then it’s unlikely to be a stock that offers capital appreciation anytime soon. The contrary is more likely, in my view.
Share price plateau
And indeed, there’s reason to believe that LLOY has been a better income than growth stock in the recent years. One look at its share price chart shows the plateau it was on until the stock market crash struck, making matters even worse. Which, leads me to believe, that until dividends make a comeback, an investment in the Lloyds Bank share won’t take us very far.
Further, there’s no way of knowing whether it will start paying dividends anytime soon. The economy is improving, and I’m quite optimistic about its prospects for the July-September quarter. But, whether the recovery is sustainable is another question. This is especially because the Brexit deadline is looming large, with no deal in sight. Even if the UK comes out in fine form over time, I reckon a no-deal Brexit will affect it at least in the short term. With LLOY’s fortunes tied closely to the economy, I’m not bullish on the share price for now.
Scandals disappoint investors
The Lloyds Bank share price has also been hit by banking sector challenges like the PPI scandal, which shaved off an appreciable proportion of its profits last year. In the latest setback for the bank, it has been revealed that LLOY forced small businesses to open business accounts to avail of the government support scheme. I didn’t find any explanations for this on the Lloyds Bank website, so there’s no way of knowing if there’s another side to the story but so far, LLOY comes out looking quite bad as a result.
The takeaway for LLOY
Things may well turn around for this UK share though, overtime. It’s a large British bank, with a strong legacy and has been financially robust. It has been hit by the recession and the stock market crash, ongoing Brexit uncertainty, the PPI claims and government support scheme scandals. Time will tell how well it weathers these situations, but for now there are more dependable stocks to buy.
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.