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Lloyds is the UK’s most popular stock. Have investors lost their minds?

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High street bank Lloyds Banking Group (LSE: LLOY) has been the most traded UK stock for years, and it still is today. That means there are an awful lot of disappointed investors out there, because its performance has been lousy for the entire Millennium.

Lloyds is a disaster stock, and has been ever since it peaked way back in 1999. It’s a blisteringly terrible share, but investors keep rolling up and giving it another shot.

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This is how bad Lloyds is. The FTSE 100 bank’s price hit its all-time high of 976p per share during the first half of 1999. It got hammered in the tech crash but rallied to 591p just before the financial crisis struck in 2007. So where does it stand today? At around 28p.

That’s right, 28p.

Lloyds is bad for your wealth

This means if you’d invested £1,000 in 1999, your shares would now be worth around £30. You would have just 3% of your original investment. To be fair, you would have received a few dividends along the way. Not as many as you’d hoped though, because Lloyds didn’t pay any dividends after the financial crisis, before resuming them in 2015.

Lloyds isn’t paying dividends now either. Like the rest of the big banks, it was forced to stop them by government order. And to think they used to call it a ‘dividend machine’.

Lloyds had to be bailed out by taxpayers in the financial crisis, to the tune of £20.3bn. Happily, taxpayers eventually recovered most of their money. Not so shareholders.

For years, investors piled into Lloyds, hoping it would make a comeback and they would cash in when it did. I’m one of those investors, which makes me as mad as anyone else. 

Now we have Covid-19, and Lloyds is flailing again. While global stock markets have recovered in the last six months, Lloyds has continued to fall. Even this hasn’t deterred investors. Figures from AJ Bell show that it was the most bought stock over the last six months, yet loyal buyers were rewarded with a drop of 19.3% over that period.

The UK’s most loved unloved stock

Lloyd has been unlucky. After the financial crisis, it was widely applauded for simplifying its business to focus on the domestic UK market, only for Brexit to ruin that theory. A decade of near-zero interest rates has squeezed margins, and the pandemic has only made that worse.

Covid-19 also seems likely to drive up bad debts, especially when unemployment climbs after the furlough scheme ends on 31 October.

The Lloyds share price looks dirt cheap. It trades at just eight times earnings. Its price-to-book value is a mere 0.4. The problem is that Lloyds has looked cheap for ages. I was drawn to its shares last year when they traded at 56p. They’ve lost half their value since then.

Lloyds looks like an incredible bargain. I can understand why people are rushing to buy at today’s price. I won’t be joining them, though.

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Harvey Jones 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.

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