The Motley Fool

If I could only invest in one banking stock, I would buy Lloyds shares

Image: Lloyds Banking Group

Lloyds Banking Group  (LSE: LLOY) has been on many investors’ minds in recent weeks. Despite concerns that Lloyds’ final dividend payment would cause volatility, the banking group’s share price continues to rise. 

In fact, shares in Lloyds have risen almost 60% in the past year, from 30p to 48p. With that in mind, it’s still one of the first banking stocks I’d buy right now.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Lloyds Banking Group’s financials

Lloyds Banking Group is the archetypal high street bank. It makes its money through retail and commercial banking, investments, and long-term savings, like most of its competitors.

Why am I so bullish about it though? After all, Lloyds had a poor 2020. Profits fell 70% year-on-year to £1.2bn due to ultra-low interest rates and lower spending — just two of the many consequences of Covid-19.

But there was a lot to be optimistic about. For the quarter ending September 30 2020, Lloyds held more than £200bn in reserves, a 30% increase year-on-year. Its tier 1 capital ratio — the ratio of Lloyds’ total equity capital to its total risk-weighted assets — was a healthy 15.2% at the end of its last fiscal year.

A rising Lloyds share price 

At its Q1 earnings call in late April, profits were well above estimates. Underlying profits hit £2.1bn, well above the £74m it reported in the same period last year when loan loss charges almost wiped out earnings.

Lloyds also showed its confidence by releasing £323m from a cash pile that was originally intended to cover bad debts in Q1 this year. This was a stark contrast to the £1.4bn charge it took in Q1 2020 and signals subtle confidence that the UK economy will recover well amid ongoing vaccination success.

Not only that, but these are all strong signs that Lloyds is returning to some kind of pre-Covid normality. I also believe that pent-up wanderlust will lead to a rise in holiday and other loans as the British public seeks to truly shake off the shackles of lockdown. 

Risks to Lloyds’ share price

But while the bank’s close-knit relationship with the UK economy is positive for now, that could quickly turn. The global economy as a whole has been devastated by Covid-19, with the recovery expected to be long and arduous. The UK is no exception, and should there be a wave of vaccine-resistant Covid-19, then Lloyds could be back with the issues it faced in 2020. 

What’s more, uncertainties around whether the company will pay a dividend in 2021 are still fresh in investors’ minds. Due to Covid-related Bank of England regulations, the company was forced to set an ex-dividend date (the day on which all shares bought no longer come with the right to be paid) of April 15, with a final payment to come on 25 May. However, as soon as these restrictions are lifted, Lloyds has stated its intention to resume its pre-Covid dividend policy. The only question now is ‘when’ this will happen.

Lloyds’ growth potential

Lloyds is still among the top banks in the UK. It has come through a tough 2020 with plans to expand its small business offering as well as its focus on larger corporate clients. This will reduce its overexposure to loans and interest rates, and could create new avenues to grow profits. I believe that it is an exciting time to buy shares in this bank.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Jamie Adams has no position in Lloyds Banking Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.