It feels like 2008 all over again. Still, Lloyds (LSE: LLOY) shares have held up well so far this year.
Lloyds Banking Group has a nice dividend yield of about 5.7%. Is it time to top up my holding in this bank?
Retail banks can be seen as leveraged bond funds. Regulators forced retail banks to buy more and more “safe” bonds since the financial crisis of 2008.
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Those bonds are trading a lot lower in the market now.
The insurance marketplace Lloyd’s of London just booked a pre-tax £800m loss. The loss was caused by a £3.1bn drop in the value of the investment portfolio.
Now guess what that investment portfolio was largely made of?
Government bonds…
Silicon Valley Bank (SVB) got unwanted attention from the financial markets after realising losses by selling bonds.
Now the market is playing a game of whack-a-mole
All these regulations and added compliance rules since 2008 have solved exactly nothing.
If a bank’s share price goes down a lot, deposit holders start withdrawing money.
Every bank is leveraged up to their eyeballs, and none can survive a run-on-the-bank.
Luckily, Lloyds Banking Group still has the trust of the market. I am a happy long-term shareholder.
I will not add to my position, however.
Management of the bank cut the dividend in recent years. Dividend-cutting stocks tend to underperform on average going forward.
As seen in 2008, banks can go from hero to zero very fast. My investments in broad based stock market ETFs give me more than enough exposure to banking stocks already. No need to double up.
Shareholders’ property rights are not held in high esteem currently in the banking sector anyway.
The owners of SVB UK got back £1 for their troubles. Some call banks un-investable as a result.
Wall Street versus Main Street
The sausage roll king of the UK high street is Greggs (LSE: GRG). The dividend yield is a lot lower at about 2.4% excluding special dividends.
Lockdowns are a risk for this stock. In 2020, investors had to go without a dividend from Greggs.
The popular pastry chain has raised the price of the sausage roll four times since 2021 from £1 into £1.20 now. Still, the bakery chain has a good value proposition compared to the likes of Starbucks and Pret a Manger.
The company has pricing power. The stock trades at a price-to-earnings ratio of 23.
Greggs worked hard in 2022 to effectively stand still. The upside from higher sales was eaten up by higher costs.
Longer opening hours may boost sales this year.
At the same time, the impact of higher tax rates on profits is negative.
Have your sausage roll and eat it
I would rather buy more shares in Greggs than Lloyds.
In a market sell-off, this investor will try to pick up some more shares in the sausage-roll maker. The shares are not cheap enough for me to be in a rush today
For now, I will instead buy the sausage rolls in its shops!
