Why I am buying Lloyds shares now

Following last week’s Q1 announcement, Charlie Keough takes a closer look at Lloyds shares and why he is adding them to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The last week has seen an increase in the Lloyds (LSE: LLOY) share price amid the release of its Q1 results. The statement was filled with positive signs, which has led to many investors pouncing at the opportunity of capitalising on a discounted price (at the time of writing around 45p) compared to pre-Covid times. The shares have been steadily increasing in price since a 52-week low back in September of last year, and here I will explain why I am adding Lloyds to my portfolio.  

Q1 announcement provides hope

The main item to take away from the recent announcement was that profits after tax had reached close to £1.4bn – nearly three times the figure for the same period last year (£480m). This shows Lloyds is slowly but surely recovering from the initial slump of March last year. From a shareholder perspective, this equates to 1.3p more earnings per share this quarter – a good reason to make me want to add Lloyds to my portfolio.

Another reason for the increase in investor confidence was the return of loan provisions that the bank is due to receive. This equated to £323m (compared to a £1.4bn charge for the same period last year), which puts Lloyds in a solid position heading into Q2 and the rest of the year, leaving it with additional capital to utilise. The final positive was the reduction of total costs to £1.9bn as part of a continued operating cost-control operation across the business.

Not all positive news for Lloyds shares

With this said, I must be cautious about its position when looking at the future. The bank’s close-knit relationship to the UK economy can bode both opportunities and threats. Although Lloyds’ bold prediction of growth in the UK economy over 2021 and 2022 would seem to put it in good stead, the economy has taken a major hit – as we have so clearly seen over the past 12 months – and is far from recovering. This means something such as a delay in our roadmap out, set by the government, could cause the share price to plummet back down from its current levels.

As well as this, was it inevitable that results this quarter would be an improvement on those of last quarter at the outbreak of the pandemic? One could argue that the loan provisions have stolen the spotlight in covering up what many could call an expected improvement. Potential regulation on dividends may also provide instability for future investors.

Light at the end of the tunnel?

With the Prime Minister’s recent reiteration that the UK is on track to be completely free of coronavirus regulations come 21st June, there seems to be real optimism among investors for Q2 and the rest of this year ahead. Lloyds itself predicted growth in the UK economy in itsreport, and as such I believe now would be a good time to buy shares before we potentially begin to see some of the highs that we have with this stock over the past few years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough does not own shares in Lloyds. 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »