I bought a fistful of Lloyds (LSE: LLOY) shares on 1 December for 49p each. So far, they haven’t done much.
As I write this, they trade slightly lower at 47.82p, but that’s fine. I don’t buy shares in the hope of making a quick profit over a matter of months, but for the long term. By which I mean a minimum of five years, and ideally 10 years or more. I’d like to say I’m holding Lloyds for life, but that’s tempting fate.
No stock is without risk
Investing in shares is never without risk. Lloyds was once seen as a dividend income machine, but that was before the financial crisis wiped out 95% of its value.
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Investors who kept snatching at this falling knife got badly hurt as Lloyds shares carried on falling. They are down another 26.43% over five years, and 0.73% over 12 months. At least they have brushed off the recent banking crisis, so far, as investors have decided this UK-focused bank is largely safe from US or European contagion.
There is no sign of the next bull market today, as inflation continues to rage. Investors who dived into shares on the assumption that the US Federal Reserve will soon start slashing base rates have jumped too soon. It remains hawkish.
Yet at some point, the bull market will come. I have no idea when, but history shows that share prices always recover, if you give them long enough. When they do, I’m hoping my Lloyds stock holdings will join in the fun.
Lloyd certainly looks nicely priced, currently trading at a bargain 6.5 times earnings. Its price-to-book ratio is just 0.7, below the figure of one that represents fair value.
I’m waiting for sunnier times
That’s not a guarantee of success, of all course. Its shares have looked cheap for years while failing to come good. For all I know, I have walked into a value trap.
Yet I’m happy I bought Lloyds shares in December, and I’d happily buy them today, too, if I had the cash to spare. Even if the shares lie low for years, I should still make money from the dividend. Lloyds currently yields 5%, covered three times by earnings. Progression seems likely, with the forecast yield an attractive 6.2%, while cover remains generous at 2.7.
Last year, Lloyds posted full-year pre-tax profits of £6.9bn, despite credit impairments. Its common equity tier 1 (CET1) ratio, which compares a bank’s capital against its risk assets, fell from 17.3% to 15.1% in 2022, but that is still above its ongoing 12.5% target. Management also announced a new £2bn share buyback. It has the cash, so why not?
There are plenty of risks, such as a UK recession or house price crash. That bull market could take longer than we would all like. Lloyds shares could fall before they finally start rising, but if they do, I would buy more of them.
Then I would carry on reinvesting my dividends while I wait for liftoff to arrive. The bull market will come, given time.
