In December 2010, the Lloyds Banking Group (LSE: LLOY) share price stood near 67p. And today, as I write 10 years later, it’s around 40p.
Of course, that doesn’t tell the whole story about the stock’s progress (or lack of it). In November 2011, the share price had dropped to somewhere near 25p. And by June 2015, it was just above 86p.
The negatives of cyclicality for Lloyds’ business and its shares
What a ride for shareholders! And my guess is it’s not what many investors were expecting. After all, buying Lloyds a decade ago after its credit-crunch crash probably seemed like a one-way ticket upwards as the underlying business recovered from its cyclical lows. And, indeed, for much of the time, earnings were improving year after year.
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But the stock market didn’t allow Lloyds to reward its shareholders with capital growth. Instead of the share price rising to accommodate improving earnings, the market simply marked the valuation lower to account for higher earnings instead.
Why did it do that? I think the valuation contracted because the stock market looks ahead. And out-and-out cyclical businesses like Lloyds almost always see their earnings move up and down along with wider economic cycles. So, to allow for the next almost inevitable crash in earnings, the valuation reduced.
In November, we’ve seen something of a snap-back rally in cyclical stocks such as Lloyds. But even that hasn’t saved the capital value of an investment in Lloyds over the past 10 years. So far, investors will have lost around 27p per share because of the lower share price.
Dividends have failed to save shareholders
But what about the return from dividends paid to shareholders over the past decade? Have they saved our notional 10-year investment? No. This table shows the dividends paid to shareholders over the period:
|
Year |
Interim (date paid) |
Final (date paid) |
Special (date paid) |
|
2009 |
0 |
0 |
0 |
|
2010 |
0 |
0 |
0 |
|
2011 |
0 |
0 |
0 |
|
2012 |
0 |
0 |
0 |
|
2013 |
0 |
0 |
0 |
|
2014 |
0 |
0.75p (19/5/15) |
0 |
|
2015 |
0.75p (28/9/15) |
1.5p (17/5/16) |
0.5p (17/5/16) |
|
2016 |
0.85p (28/9/15) |
1.7p (16/5/17) |
0.5p (16/5/17) |
|
2017 |
1p (27/9/17) |
2.05p (29/5/18) |
0 |
|
2018 |
1.07p (26/9/18) |
2.14p (21/5/19) |
0 |
|
2019 |
1.12p (13/9/19) |
0 |
0 |
|
2020 |
0 |
– |
– |
|
Totals |
4.79p |
8.14p |
1p |
It’s quite an eye-opener for me to see so many zeros on that table considering Lloyds Banking Group shares were once considered by many investors to be decent income generators. I’m thinking about it particularly in the noughties before the credit crunch and the financial crisis at the end of that decade.
Nonetheless, shareholders will have collected income from the dividend of just under 14p per share over the past decade. That’s certainly some compensation for a low share price. But unfortunately, it’s not enough to fully offset the 27p they’d have lost on that struggling share price. The final tally for a 10-year hold until today is a loss of around 13p per share. And that means an investment of £1,000 10 years ago would now be worth around £806. That’s not the kind of investment that interests me.
