The banking industry has been hit by the economic uncertainty of recent times, and the fear of leaving the EU without a deal hasn’t helped matters. However, share prices have since sky-rocketed as a Brexit deal has been agreed with the EU, awaiting the approval of MPs.
Lloyds has suffered especially due to its lack of overseas earnings and heavy reliance on the UK economy, which isn’t the most reliable thing in the world at the moment. Since a Brexit deal is looking more certain, things have begun to improve.
Lloyds (LSE: LLOY) may have jumped significantly but that’s not to mean that it’s overpriced. In fact, it still looks like a steal to me.
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Rising up
Lloyds has jumped 12.2% since the positive Brexit news but is still looking relatively cheap with a price-to-earnings ratio of 9. While the share price has been up and down this year, this wouldn’t be the case if it weren’t for Brexit. The bank appears to have dealt with diversity well and now is back on the rise.
Lloyds is also improving itself as a business; rapid digitalization is helping to cut out manual costs. Furthermore, the expanding mortgage and credit card area of the business is also bringing in more customers and revenue. The bank appears to be well-placed to deal with Brexit in comparison to smaller banks. The fact it has already risen is a good sign.
Huge dividends
If the cheap share price and rise-despite-Brexit aren’t enough, Lloyds offers a dividend yield worth shouting about. It currently stands at a tempting 6.2% in comparison to the FTSE 100 average of 4.5%.
This is a healthy reward that investors can rely on as payout cover is expected to increase to 2.2 times next year. Profits would have to plummet 50% for the dividend to receive a cut, which is a highly unlikely scenario.
The dividend payouts are consistently growing too. Lloyds has increased its dividends by 43% in the past three years. This is impressive growth that I wouldn’t be quick to ignore.
Looking ahead
My attention will be focused on Lloyds on 31 October as it reports its third-quarter earnings. Yes, this is the same day as Brexit but no, that doesn’t have to be a bad omen. While some investors will be distracted by Brexit news, many will be looking to see how Lloyds performs.
Initially, the report may not all be rainbows and sunshine and we can expect a fall in the short-term thanks to the Brexit volatility. However, the long-term outlook appears to be a positive one for both Lloyds and investors alike. The stock seems to have a lot of offer and at the current price, it’s hard to ignore.
