If I’d invested £1,000 in Lloyds Bank shares at the start of 2022, here’s what I’d have now

James Beard looks at the performance of Lloyds Bank shares since the start of this year and considers whether he should add more of them to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

2022 new year concept image

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Ignoring fees, stamp duty and dividends, if I had invested £1,000 in Lloyds Banking Group (LSE:LLOY) shares at the beginning of January, I would now have £1,000.

Yes, the Lloyds share price is unchanged this year, and is holding up during a period of rising energy prices and rampant inflation. Recently, it has also outperformed the FTSE 100, but why?

Results and dividends

In July, Lloyds reported a 12% increase in its net income during the first half of 2022.

A 20% increase in its interim dividend was also announced.

Lloyds’ last two dividends have totalled 2.13p. Based on its current share price, this gives a yield of 4.5% — a better return than that earned by leaving cash on deposit with the bank.

UK economy

But Lloyds is particularly exposed to the performance of the UK economy, with nearly all of its revenue being derived from domestic activities.

The Bank of England is forecasting that the UK will enter into recession during the fourth quarter of this year, and an impending economic downturn makes me nervous about the prospects for the Lloyds share price.

Bad loans

One key metric for banks is the level of provision they make for loans that they estimate might not be repaid.

Although Lloyds’ provision for bad loans is less than it was during the pandemic, it was increased by £377m when its half-year results were published two months ago.

Lloyds is the UK’s largest mortgage lender. A downturn in the housing market is likely to lead to a reduction in new business, and a squeeze on disposable incomes will further increase the likelihood of bad loans.

Interest rates

But I like the idea of investing in banking shares. With interest rates rising both in the UK and overseas, the net interest margin earned by banks — the difference between the amount earned from lending money and the amount paid on deposits — will increase.

Other options

So, what about other high-street banks in the FTSE 100?

Barclays has seen no change in its share price during 2022, and its dividend yield of 3.7% is the lowest of any bank in the Footsie.

In contrast, the share price of NatWest has risen by approximately 12% this year. Encouragingly, research by Numis has found that NatWest is likely to benefit the most from rising interest rates. 

Yet, over 90% of NatWest’s outstanding loans are to UK customers.

HSBC is the largest bank in the FTSE 100 and its shares have risen by 19% this year.

Nearly 80% of HSBC’s income is derived from outside the UK, which removes some of my fears about being exposed to a faltering UK economy.

However, HSBC is heavily invested in China’s property market, with a third of its lending to the sector either substandard or impaired. Morgan Stanley has warned that a further downturn in China could impact on the wider economy in Asia, from where HSBC generates nearly two-thirds of its profit.

What should I do?

As the global economy shows signs of weakening, it looks as though the four largest banks in the FTSE 100 are going to face a difficult period ahead.

I am therefore going to wait before investing further in Lloyds, or any of the other FTSE 100 banking stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Lloyds Banking Group. The Motley Fool UK has recommended HSBC Holdings and 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.

More on Investing Articles

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »