The Lloyds Bank (LSE: LLOY) share price seems to drive investors crazy. Its value has been on a general uptrend over the past year, but is still down 25% from the pre-pandemic days. In fact, the share price hasn’t really recovered from the 2008 financial crash.
But Lloyds drives far more investor interest than almost any other publicly traded UK company, and I have had to ask myself…why?
Lloyds doesn’t pay a particularly exciting dividend, and the price has remained fairly stagnant since 2009. What is it about this bank that’s keeping investors hooked?
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Share price fundamentals
On paper, Lloyds seems like a very safe investment. Its price-to-earnings ratio (P/E) hovers at a very respectable 6.93 and the bank has a CDP score of A-. Lloyds does offer a dividend but, as I said before, it comes in at 2.73%, well below the UK average of 4%. It does have a very high market cap at £32.25bn, although this is slightly lower than Natwest’s £32.98bn.
In fact, Lloyds and Natwest are both dwarfed by HSBC‘s £90.12bn market cap, 3.59% dividend yield, and equivalent CDP score of A-. At a cursory glance it seems to me that HSBC has always been the better investment, although its share price has failed to recover to pre-pandemic levels and the consistent allegations of money laundering have dogged the bank for as long as I can remember.
Marketing and branding
Lloyds has excellent brand recognition. There’s no arguing that. Its black horse is nothing short of iconic and the bank undoubtedly has the largest presence of any in the public zeitgeist. This could just be down to exposure. I don’t tend to watch adverts if I can help it, but Lloyds bank adverts are by far and away the most ubiquitous and memorable of any in the sector.
Warren Buffett has always stressed the importance of a business having a ‘moat’ or aspect which will protect it from the competition. Brand recognition is one kind of moat but from where I’m sat, it seems like that’s all Lloyds has going for it.
What about Lloyds future?
Over the course of 2021, Lloyds announced that it would be closing more than 90 of its branches across the country. It also made headlines for its plans to invest in build-to-rent homes around the country. Closing branches will help to cut costs but there is a chance that by shrinking its high street presence that it may hurt its branding.
Lloyds probably hopes that being a landlord will become more profitable than mortgage lending over the next few decades. I can see the logic behind this, especially with interest rates being so low right now.
But Lloyds has been profitable despite low rates and being a landlord incurs ongoing maintenance costs. On top of that, there is no guarantee of income if homes remain empty.
Honestly, I’m still unsure why retail investors seem so enamoured with Lloyds. It’s not a bad company, but to my eye, it owes most its popularity to branding.
Perhaps people expect the share price to shoot to the pre-financial crash highs, but I won’t be adding it to my portfolio any time soon.
