If an investor had put £10,000 into Lloyds (LSE: LLOY) shares at the start of this year, they’d be justified in breaking out the bubbly.

The FTSE 100 bank has bounced back nicely after being outgunned by rivals Barclays and NatWest last year.

A key factor in its underperformance was the motor finance mis-selling scandal. Lloyds is far more exposed than Barclays and NatWest via its Black Horse car loans division. The board set aside £450m for potential impairments. Some analysts reckon it could be on the hook for billions.

In its full-year 2024 results, published on 20 February, the board set aside an extra £700m to cover potential claims. That lifted the total to £1.15bn, which Lloyds called its “best estimate”.

This FTSE 100 bank is bouncing

Investors now await a Court of Appeal hearing in April about the scope of a review into the scandal. This could drag on for months or years. Yet investors decided not to panic. Why?

They were too busy celebrating the board’s bumper £1.7bn share buyback. If that was designed to show investors that Lloyds could afford to lose a billion or two in compensation, it worked. The dividend was hiked by 15%.

This also put a positive gloss on a 20% drop in pre-tax profits from £7.5bn to £5.97bn. In another disappointment, net interest margins, the difference between what Lloyds pays savers and charges borrowers, fell 16 basis points to 2.95%.

Sometimes I really don’t understand the stock market. On another day, Lloyds could’ve taken a beating. Instead, the shares are flying. Over the last 12 months, Lloyds shares have surged 46%. That’s good, but over the same time scale Barclays has rocketed 87% with NatWest up a staggering 93%.

Still, £10k invested in Lloyds at the start of the year would now be worth £12,100. The investor won’t have received any dividends yet, but they’ll get a payout on 20 May.

Dividends are on the way

Even after this rally, Lloyds shares still don’t look too expensive. They trade at a price-to-earnings (P/E) of 10.7, comfortably below the blue-chip average of around 15 times.

I’m a little concerned by the price-to-book ratio. When I bought the shares a couple of years ago, it was down to 0.4. Last year, it was around 0.6, then 0.8. Today, it’s up to 0.9. The shares are starting to look fully valued.

When I look at the income, I stop worrying. The trailing dividend yield stands at 4.75%, but analysts expect this to rise to 5.01% in 2025 and 5.73% in 2026.

If interest rates fall later this year, that could boost consumer lending (but may squeeze margins further). The motor finance scandal could drag on, as could the general downturn and cost-of-living crisis.

The 18 analysts offering one-year share price forecasts have produced a median target of just under 69p. If correct, that’s an increase of just 2.8% from today. The easy gains may have been made.

I still think the shares are well worth considering for an investor who wants long-term exposure to a FTSE 100 bank. I’m holding mine, with luck, for decades. But in the shorter run, I expect them to slow from here.

The post £10,000 invested in Lloyds shares at the start of this year is now worth… appeared first on The Motley Fool UK.

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• Buying £20k of Lloyds shares could give me an £851 income this year!
• At 100p, is now a good time to consider buying Lloyds shares?
• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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.

Investors love Lloyds (LSE: LLOY) shares. The FTSE 100 bank regularly features among the UK’s most traded blue-chips. And they’re finally being rewarded for their loyalty, with the Lloyds share price jumping 47% in the last year.

Yet everything’s relative, and Lloyds investors can’t help looking over their shoulders at rival FTSE banks Barclays and NatWest, which have skyrocketed 99% of 93% respectively over the same period.

Lloyds is trailing because it’s been swept up in motor finance mis-selling scandal, which risks turning into the next PPI. That cost Lloyds a whopping £23bn in compensation claims, more than any other bank.

The FTSE 100 bank has started 2025 well

Now it’s on the hook again, thanks to its Black Horse division. Some reckon it could have to pay £4.2bn in compensation for hidden commission payments on car loans. The final bill could be even higher. Barclays and NatWest have mostly avoided the hit. Why always Lloyds?

Yet suddenly investors aren’t quite as worried, thanks to chancellor Rachel Reeves. She’s working to block car loan firms from having to shell out huge sums in compensation, fearing it could bankrupt smaller lenders and undermine wider UK competitiveness. That would send worrying signals to the international investors she’s now desperate to cultivate.

It’s a controversial step, but with the economy under pressure Reeves doesn’t want another compensation free-for-all. There’s contagion risk too, as the commission principle, once established, could spread to other sectors, such as insurance. The total bill could be astronomical, as industry lobbyists have no doubt been warning.

Reeves has given Lloyds a further potential lift by supporting Financial Conduct Authority proposals to relax mortgage lending rules, in a bid to boost home ownership and get Britain moving. This includes simplifying lending criteria and reassessing affordability tests, which could boost Lloyds as the UK’s biggest lender.

Reeves may also ease bank ring-fencing rules, which protect consumer deposits by separating lenders’ retail and investment banking operations.

We don’t know whether any of this will happen, or whether it’ll make a difference. But it’s lifted the mood, especially on Lloyds. Since I hold the stock, I’m delighted.

I’m buying mostly for the dividends

An investor who put £10,000 in Lloyds just a month ago would have seen the value of their stake rise 15%. Today, they’d have £11,500. They can also look forward to some dividends too, with Lloyds shares forecast to yield 5.25% in 2025.

Yet there’s still plenty to worry about, as the UK potentially slips towards recession, interest rates remain high, and consumer sentiment low.

Even if the Bank of England does cut base rates, it could prove a mixed blessing. That would squeeze net interest margins, the difference between what banks pay saves and charge borrowers.

So much for the news flow. Ultimately, I treat it as background music. Unless something dramatically changes, there will always be a place for Lloyds shares in my portfolio. I plan to hold them through thick and thin, and re-invest every dividend I get until I reach retirement, when I’ll draw them as income. With luck, I’ll be holding Lloyds for life.

The post £10k invested in Lloyds shares one month ago is now worth… appeared first on The Motley Fool UK.

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• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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.

After a bumpy few months, there’s a danger the Lloyds (LSE: LLOY) share price could dip below 50p for the first time since last March. 

As a long-term investor in the FTSE 100 bank, I hope that doesn’t happen. Although if it does, it won’t change the investment case, in my eyes. I still think this is still a solid long-term hold for dividend income and share price growth.

The Lloyds dividend looks pretty secure, with a trailing yield of 5.2%. That’s now forecast to hit 6.4%, still nicely covered twice by earnings.

Can this FTSE 100 bank bounce back?

Unfortunately, the share price has been volatile. It’s up 12% over the last 12 months, but over five years it’s down 12%. And the bumpiness looks to continue.

There’s lots to like about Lloyds. Its shares are incredibly cheap, trading at just 6.96 times trailing earnings. Like every bank, it’s also benefited from rising interest rates, which allows them to widen net interest margins. With rates now forecast to stay higher for longer, those margins should remain wide.

There are downsides to higher rates though. They make mortgages costlier, hitting demand. That’s a blow for Lloyds, which is the UK’s biggest lender. Debt impairments could rise as borrowers struggle.

Higher interest rates also give investors a higher rate of income from cash and bonds, without risking their capital. This makes dividend stocks like Lloyds less attractive.

Everyone is a bit gloomy about the UK economy. That’s a problem for Lloyds, which is exposed to its fortunes due to its narrow focus on domestic retail and commercial banking. If we slip into recession this will squeeze consumer spending, business confidence, demand for loans, credit quality and profitability.

Lloyds is working hard to boost its efficiency via cost-cutting initiatives such as branch closures, and its digital transformation programme. Sceptics question whether the big FTSE banks can adapt to structural changes such as the rise of fintech, although they’ve seen off the challenger bank threat pretty handily.

I’m expecting a bumpy ride from this stock

The 19 analysts offering one-year forecasts for Lloyds have produced a median share price target of almost 65p. That would mark an increase of more than 20% from today’s 53p. Combined with that yield, this would give me a total return of more than 25%. We’ll see.

I’m a bit gloomy about the UK outlook right now. There’s another shadow hanging over Lloyds, in the shape of the motor finance mis-selling scandal. We don’t know how that could pan out, but broker RBC has warned the bill could hit £3.9bn. Lloyds has only set aside £450m. Let’s hope RBC’s wrong.

The Lloyds share price has a lot of room for growth and could hit 65p this year. But if the economy slides and motor finance turns into a new PPI, it could just as easily slump to 45p.

I’ve given up predicting the Lloyd share price. I’m just going to hold on to what I’ve got, and reinvest every dividend I get. Over the longer run, I think it’ll make me a lot richer. Albeit slowly and bumpily.

The post Could the beaten-down Lloyds share price surge to 65p this year? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

As we stride purposefully into 2025, my mind’s on the Lloyds (LSE: LLOY) share price. After starting 2024 at a gallop, it stumbled badly.

That allowed it to be overtaken by FTSE 100 rivals Barclays and NatWest. They raced ahead in the final furlongs of 2024.

Lloyds shares are up 15% over the last year, which is more than respectable. Except that Barclays and NatWest rocketed 72% and 82% respectively. So what went wrong?

Lloyds was unseated by its Black Horse division, which got swept up in the motor finance mis-selling scandal.

This FTSE 100 bank could play catch up

The board originally set aside £450m for potential fines and customer compensation, but RBC Capital Markets has since warned it could take a £3.2bn hit. It put Barclays down for a mere £400m.

I’ve backed the wrong horse. However, once the trailing 5% yield’s included, I still made a total return of around 20% last year. Better still, while Barclays and NatWest may have run their race, Lloyds has some catching up to do. 

I can see real potential for a strong 2025, but much depends on how the motor finance misery plays out. Personally, I’ve got no idea. Neither has Lloyds. Nor does RBC Capital (hopefully, given its gloomy prognosis). So the shares are a bit of a punt.

Banking stocks flew last year as profits increased and interest rates stayed relatively high, allowing them to maintain net interest margins. That’s the difference between what they pay savers and charge borrowers.

The UK economy slowed in the second half of the year, as the new government had a troubled start and inflation proved sticky.

Happily, the housing market stood firm, despite relatively high mortgage rates. That’s good news for Lloyds, which via subsidiary Halifax is the UK’s biggest mortgage lender. While Q3 statutory profits declined 2% on last year, they still totalled £1.82bn.

Still a brilliant dividend income stock

Everyone seems gloomy right now, with inflation forecast to top 3%, consumers anxious, tax hikes landing in April and talk of a recession. The downbeat mood may have been overdone. We’ll see.

Lloyds has worked hard to streamline its operations, closing costly branches as it pivots towards higher margin areas like digital banking and wealth management. Its partnerships with fintech players could pay dividends in the long run.

Talking of dividends, I’m optimistic on that front. Analysts reckon the shares will yield a bumper 5.58% this year. By 2026, that’s expected to hit 5.95%.

That looks good today. It will look even better when interest rates finally fall, dragging down the yields on cash and bonds. With luck, that will lure in more income seekers.

I don’t expect the shares to take off until the motor finance issue’s parked. And maybe not even then if the compensation bill’s massive.

To answer my own question, yes, Lloyds shares could mount a magnificent comeback but we may have to be patient. My strategy’s simple. I’m holding on to the shares throughout the market cycle, and reinvesting every dividend I get.

Over the longer run, I hope to reap a magnificent total return.

The post Is the Lloyds share price set to mount a magnificent comeback in 2025? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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.

The FTSE 100 a made a strong start to 2024 but the final months of the year were bumpy. A total return of around 10%, including dividends and share buybacks, is roughly double the yield from cash and bonds. But it was overshadowed by stellar US performance.

Wall Street has been going great guns for the last decade, driven by the almost unbelievable performance of mega-cap tech stocks like Nvidia and Tesla.

Yet that the UK has had its winners too, with British Airways-owner International Airlines Consolidated Group and jet engine maker Rolls-Royce growing 95% and 90% respectively this year. Both have benefited from the post pandemic recovery in the airline sector.

2024 was much better than it looks for UK stocks

While most investors measure performance by how well a country’s main index has done, it’s not so relevant for people like me who prefer to pick their own stocks rather than buy trackers.

While it can be more rewarding, it’s also risky. My best FTSE 100 performer this year is private equity specialist 3i Group, up 50%. My worst is JD Sports Fashion, down 40%. So which would I buy today?

To me, it’s a no-brainer: JD Sports. Its shares have taken a beating as consumer spending is squeezed, key partner Nike struggles, the Budget hikes employer’s national insurance bills, and Donald Trump threatens trade tariffs.

Yet JD Sports is now incredibly cheap, trading at eight times earnings. It looks like a bargain buy with great recovery prospects. And it’s not the only FTSE 100 stock that fits that profile.

Lloyds Banking Group (LSE: LLOY) has sold off in recent months, as its Black Horse division got embroiled in the motor finance mis-selling scandal.

Lloyds could be a winner in 2025

Lloyds set aside £450m for potential fines and customer compensation, but that may not be enough. RBC Capital Markets warned Lloyds could take a £3.2bn hit. It put FTSE 100 rival Barclays down for a mere £400m.

The Lloyds share price is up around 12% year to date, with the trailing dividend yield of 5% lifting my total return to 17%. Investors in Barclays have enjoyed a total return of 70%. The mis-selling scandal isn’t the only difference between the two, but it’s a big one.

Yet I’m sticking by my Lloyds shares and would buy more inside my Stocks and Shares ISA if I had the cash. They look cheap, trading at 7.1 times earnings, while the forward yield is a bumper 6.1%. Shareholder payouts look solid, covered 2.1 times by earnings.

Lloyds faces risks. The motor finance scandal could turn into a real car crash. A slowing UK economy could drive up debt impairments. Falling interest rates could cut margins. So it goes with every stock.

The all-conquering US faces risks too. Whether the Trump administration succeeds or fails, one thing is certain. It’s going to be bumpy. Plus the S&P 500 is roughly twice as expensive as the UK to start off with. I’m hoping the FTSE 100 will close the gap in 2025, with cut-price stocks like Lloyds leading the charge.

The post Cheap shares like this FTSE bank could help ISA investors get rich in 2025 appeared first on The Motley Fool UK.

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• At 100p, is now a good time to consider buying Lloyds shares?
• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

Harvey Jones has positions in JD Sports Fashion, Lloyds Banking Group Plc and Rolls-Royce Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, Nike, Nvidia, Rolls-Royce Plc, and Tesla. 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.

Lloyds (LSE: LLOY) shares have gone nowhere for ages. Suddenly, that’s changed. The FTSE 100 banking stock has jumped 16.96% in the last month, but still looks cheap trading at a lowly 6.4 times earnings.

I’m pleased and relieved to see my Lloyds shares on the up. I bought them last June and again in September at around 43p. With the share price now 48.63p, I’m up around 12%. Obviously, it’s not a Rolls-Royce or Nvidia-style return, but a month ago I was in the red.

I bought Lloyds because I thought its shares were undervalued and would recover nicely once inflation fell and the economic outlook brightened. We’re not there yet, but already the shares are pointing the right way.

FTSE 100 recovery stock

Despite the doom and gloom, I think the UK is moving into recovery mode. If inflation falls to 2% in April, as markets expect, that will give everyone a lift. The latest Halifax house pricing index, published on Friday, showed property prices rising for the fifth consecutive month. This should boost Lloyds, as the UK’s biggest mortgage lender.

The share price got its first sizeable boost on 16 February, when rival NatWest Group posted a better-than-expected 20% rise in pre-tax profits to £6.17bn. Investors expected crossover when Lloyds published its full-year results six days later, and so it proved.

Pre-tax profits jumped 57% to £7.5bn, the highest in 20 years. The key metric of the net interest margin, which measures the difference between what banks pay savers and charge borrowers, rose 17 basis points to 3.11% over the year. The board lifted the full-year dividend by 15% to 2.76p a share. It now yields a juicy 5.68% with the promise of more to come.

There are still risks

Lloyds isn’t out of the woods yet. Net interest margins actually fell in Q4, to 2.98%. Once interest rates are cut, margins could narrow further. Another concern is that the Financial Conduct Authority is investigating a potential car finance scandal, which could affect the bank’s Black Horse loans division.

Lloyds has set around side around £450m for compensation claims but with campaigner Martin Lewis making a lot of noise, that may not be enough. The PPI scandal cost Lloyds £21.9bn, remember.

It’s a worry its investors don’t need, but it won’t persuade me to sell. I’m hoping to hold my shares for a decade or two, and over such a long period there will always be ups and downs. Yet I’m not planning to buy more. From recent experience, the share price could easily give up its gains. I may get another chance to buy at a lower price than today.

I’m happy with my existing exposure and will leave it to compound and grow, while targeting other dividend income stocks on my hit list. There are plenty of cheap high-yielders on the FTSE 100 today. I just wish I had the money to buy all of them.

The post Up 17% in a month! Is this my last chance to buy Lloyds shares for less than 50p? appeared first on The Motley Fool UK.

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• At 100p, is now a good time to consider buying Lloyds shares?
• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc, Nvidia, and Rolls-Royce Plc. 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.

In what seems to be a recurring theme, the Lloyds (LSE: LLOY) share price has failed to deliver this year.

I hold the stock myself. And I wouldn’t hold it against investors who questioned why I do. After all, its performance in recent times has been dire.

But now at 41p, is it cheap enough to be turning their heads?

Historical performance

The last five years have been far from joyful for the bank’s shareholders. Five years ago, a single share would have cost me around 59p. Today, I can pick one up for 30% cheaper.

It’s continued with its poor form more recently too. In the last six months alone it’s plummeted by 20%.

All doom and gloom?

So, is there light at the end of the tunnel?

Well, one of the main reasons I own the shares is for passive income. As I write, the stock presents investors with a whopping dividend yield of 6.1%. This isn’t inflation-beating, but it’s not far off. What’s more, the firm recently announced plans for a £2bn share buyback scheme, which is an encouraging sign.

Of course, there’s always the risk that dividends can be cut. But with it covered around three times by earnings, I’m confident Lloyds will pay out.

In addition to this, the business also flexed its strong performance in its half-year results. While impairment charges rose, a side effect of inflation, pre-tax profits and net income experienced significant jumps. With a 14% rise in underlying net interest income, Lloyds also upgraded its guidance for the remainder of 2023.

While its latest results are promising, I’m more focused on where the bank is heading in the years ahead. And as a Fool, the focus being placed on the long term is something I’m a big fan of. This predominantly exists via plans recently announced by CEO Charlie Nunn, who stated the firm is aiming to diversify revenue streams over the next three years. This £3bn investment should hopefully provide some uplift for the Lloyds share price.

What I’m doing

I remain bullish on Lloyds shares. The stock I already own I’ll continue to hold but I won’t buy more at the current price. Yet if the price continues to fall and my budget permits, I’ll be seeking to snap up some more shares.

The main draw for me is passive income. A lower share price means a higher yield, which translates to a more attractive proposition for my portfolio.

I like the moves the bank is making. And fundamentally the stock looks cheap, with a price-to-earnings ratio of just six.

Market watchers continue to have inflation at the front of their minds. And while this could hurt the share price in the coming months, I can’t see it being an issue in multiple years’ time. It’s been a rough period for the share price, but here’s hoping it stages a comeback.

The post The Lloyds share price continues to fall. Is it now too cheap to ignore? appeared first on The Motley Fool UK.

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Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

I see buying UK-listed dividend shares as key way to create passive income. And the FTSE 100 is home to plenty of businesses willing to reward shareholders with sizeable dividend yields.

Here are two I’m watching like a hawk.

Dividend powerhouse

My first choice is Footsie stalwart Legal & General (LSE: LGEN). I already own the stock. However, following a shaky week for its share price after the release of its half-year results on 15 August, I’m tempted to top up my holdings.

The main reason for the fall was the detrimental impact that rising interest rates have had on its fund management arm and aspects of its UK insurance business. However, I deem these short-term issues and I’m more focused on the positives.

To start, the stock looks cheap. As I write, it trades on a price-to-earnings ratio of just 6. That’s over half that of the FTSE 100 average, so I see real value in Legal & General shares.

Moreover, its near-9% dividend yield is also enticing. The firm’s made a massive push in boosting shareholder returns in the past few years, including its ambitious dividend plan set to end next year. In its latest announcement, group CEO Sir Nigel Wilson said the business remained in the position to “deliver attractive returns” to shareholders.

More widely, I’m a fan of L&G due to its rich history and strong brand presence. The current issues seen in the financial sector could hamper its performance in the short run. But with its name, low valuation, and attractive income, I’d be keen to buy Legal & General shares.

A dark horse

Second on my list is banking giant Lloyds (LSE: LLOY). Similar to Legal & General, I already own the stock. However, following a 10% fall in 2023, I sense an opportunity to buy.

It’s been far from plain sailing for banking stocks in the last 12 months. Racing inflation, aggressive rate hiking, and the volatility seen across the sector, have investors spooked. But, in my opinion, there’s plenty to like about Lloyds.

For example, the stock provides investors with a yield touching 6%. While this isn’t inflation-beating, it certainly trumps my money sitting stagnant in the bank. Covered nearly three times by earnings, I’m also fairly confident that it’ll be paid out.

The Black Horse Bank recently released its half-year results, with highlights including an 11% jump in net income (£9.2bn). Rising interest rates have also played a part in Lloyds’ near-term success. That said, impairments did rise to £662m for the period.

Aside from results, the firm is also taking great strides to ensure future success, including a £3bn project to diversify its revenue streams.

Its reliance on the UK is a slight worry. And a choppy short-term outlook could harm Lloyds. However, I’m ignoring that in favour of the long-run growth opportunities, of which I see plenty.

The play

I like both stocks, and despite already owning them, I’m keen to top up my holdings as I look to put my money to work. If I have the cash, I’ll be looking to snap them up in the weeks ahead.

The post These 2 UK dividend shares look cheap! Here’s why I’d buy appeared first on The Motley Fool UK.

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Charlie Keough has positions in Legal & General Group Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

At 44p, I think Lloyds (LSE:LLOY) shares look cheap. But are they?

After all, the stock has failed to deliver in the last five years, down by nearly 30%. And this year, it’s continued this trend, falling by over 5%.

Inflationary pressures have weighed down on Lloyds. And as central banks across the globe continue with their aggressive rate hiking cycles, investor confidence has been knocked.

More widely, the banking sector has experienced major volatility this year, epitomised by the collapse of Silicon Valley Bank.

However, I’m a Fool. And as such, I think Lloyds currently presents an opportunity.

Here’s why.

Passive income

My main attraction to Lloyds is the passive income opportunity it represents.

The stock currently offers a dividend yield of 5.6%, comfortably above the FTSE 100 average and a host of its competitors. And with inflation sitting at 7.9% for June in the UK, this seems like a smart way for me to put my money to work and hedge myself, to an extent, against amplified rates.

Of course, there’s the risk that this dividend could be cut. But with it covered over three times by earnings, I have a fairly high level of confidence in Lloyds paying out.

And the business also recently announced plans for a £2bn share buy-back scheme, which highlights the focus the business is placing on returning value to shareholders.

Strong results

Last week also saw the Black Horse Bank release its half-year results, which offered some reason for optimism. For the period, pre-tax profit rose nearly 25%, while net income also jumped 11% to £9.2bn.

Despite the uncertainty surrounding the UK economy, Lloyds has also benefited from rising interest rates. The first half of 2023 saw a 14% rise in underlying net interest income. On the back of this, Lloyds upgraded its guidance for the remainder of the year.

However, this doesn’t come without its side effects. And this was seen in the £662m impairment charge it recorded. In fairness, this doesn’t paint a full picture as it’s a reserve and some may be credited back. But it’s certainly a risk.

Future prospects

I also like the plans the firm is setting out for the future. Led by group CEO Charlie Nunn, the business aims to diversify its revenue streams in the years ahead.

This includes placing greater focus on business areas such as its rental venture, Citra Living. As part of this, it plans to have 10,000 homes in its portfolio by the end of 2025.

While this original target may prove to be optimistic, the firm is making headway, with its latest announcement revealing a further 700 properties it has in its pipeline.

A buying opportunity

So, at the current price, I think August presents a great buying opportunity.

A choppy UK economy may dampen the stock’s performance in the near term, but as a long-term investor, I like the look of Lloyds.

With strong growth prospects and with an added bonus of its sizeable yield, if I had some spare cash, I’d snap up some shares.

The post Is August the time to be buying Lloyds shares? appeared first on The Motley Fool UK.

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• The red lights are flashing again for Lloyds’ share price! Here’s why
• Buying £20k of Lloyds shares could give me an £851 income this year!
• At 100p, is now a good time to consider buying Lloyds shares?
• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

Lloyds (LSE: LLOY) shares have failed to deliver in 2023, down around 6% year to date.

The stock has taken a beating in the last 18 months or so as inflation and rising interest rates have dented investor confidence.

Moreover, the financial sector has experienced major volatility in recent times, exemplified by the collapse of Silicon Valley Bank, the UK arm of which was eventually snapped up by Lloyds’ competitor HSBC for just £1.

Yet with this comes the question of whether Lloyds shares are too cheap to ignore. And at 44p, there’s certainly a case to be made.

Hiking rates

Rising interest rates are something of a double-edged sword for Lloyds.

First of all, it’s clear to see that Lloyds has benefited from the actions taken by the Bank of England. With higher rates, The Black Horse Bank can charge customers more when they borrow. This has translated to a major boost to the group’s its net interest income, which rose 20% in Q1 led by growth in the net interest margin.

Also, with saving rates at levels not seen in years, it’s arguably easier for the business to attract new customers. Furthermore, encouraging existing ones to deposit more should also be easier.

However, there’s a caveat. Higher rates place pressure on Lloyds given the heightened likelihood of customers defaulting on their loans, leading to higher impairment costs. For Q1, while its impairment cost come in lower than forecasted, it still stood at £200m.

A meaty dividend

That aside, I think there are other factors that make Lloyds an attractive proposition for investors.

The stock offers a dividend yield of 5.4%, which provides a great way for investors seeking income to put their money to work against inflation. The business is also placing greater emphasis on returning value to shareholders, with it recently announcing plans for a £2bn share buy-back scheme.

While dividend payments can be cut at any time by a business, with its dividends covered over three times by earnings, this should provide investors with some level of comfort.

On top of this, Lloyds stock also looks cheap, with a price-to-earnings ratio of just 6.

The firm recently announced its new and ambitious £3bn strategy spearheaded by group CEO Charlie Nunn, which aims to diversify its revenue streams. While still upgrading its core products, Lloyds also plans to focus more on areas such as its digital offerings and its rental venture, Citra Living.

Too good to pass up?

So, at their current price, are Lloyds shares a no-brainer?

Well, I already own the stock. And at 44p, I think they present a great buying opportunity.

 Short-term concerns could put pressure on its share price. But as a Fool, I’m not worried about that.

With a low valuation and a progressive long-term strategy, I like Lloyds. The potential for some additional income on the side is also a bonus.

If I had any cash to spare, I’d most certainly be looking to snap up some more shares.

The post At 44p, should investors consider Lloyds shares today? appeared first on The Motley Fool UK.

More reading

• I was right about the Lloyds share price! Next stop 125p?
• The red lights are flashing again for Lloyds’ share price! Here’s why
• Buying £20k of Lloyds shares could give me an £851 income this year!
• At 100p, is now a good time to consider buying Lloyds shares?
• Here’s the dividend forecast for Lloyds shares as we head into a new 2026 ISA season

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group Plc. 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.