Lloyds shares pay over 5% a year in cash. But there’s more to them than that!

Lloyds shares have dropped more than 20% from their 2023 high in early February. But I’m holding on tightly to my shareholding for these four reasons.

| 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.

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

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.

In the run-up to the global financial crisis (GFC) of 2007-09, my investment portfolio was packed with financial stocks. But as capitalism looked like it was starting to crumble at the time, I sold almost every one of these stocks, including my Lloyds Banking Group (LSE: LLOY) shares.

Sliding shares

For much of the next 13 years, I rarely owned any banking or finance stocks. But in late June 2022, my wife bought Lloyds shares for our family portfolio. She paid an all-in price (including buying commission and 0.5% stamp duty) of 43.5p a share.

At its 2023 high, the Lloyds share price peaked at 54.33p on 9 February. However, within a month, banking stocks plunged worldwide as several mid-sized US banks failed. Of course, Lloyds shares duly followed suit.

Should you invest £1,000 in Petropavlovsk Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Petropavlovsk Plc made the list?

See the 6 stocks

Here’s how this popular and widely held share has performed over eight different timescales:

One week+1.8%
One month-5.2%
Three months-11.8%
Six months+2.7%
One year+7.6%
Two years-2.6%
Three years+57.9%
Five years-29.5%

Over the past month, Lloyds shares have lost over 5% of their value, while they’re down almost 12% in three months.

On Friday, the stock closed at price of 46.72p, valuing the group at £30.5bn. This leaves the share price a hefty 21.3% above its 52-week low of 38.51p, hit on 13 October of last year.

Why we own Lloyds today

Clearly, owning bank shares has become much riskier, given the recent failure of four US banks and the emergency rescue of Swiss giant Credit Suisse. So why haven’t we sold our Lloyds stock, much as I did in 2007-08?

The first point I’d make is that I expect a bright future for the Black Horse bank. Though a few American banks have got into trouble, UK banks are more strongly capitalised than they’ve ever been.

Second, during the Covid-19 crisis of 2020-21, Lloyds and other major UK banks suspended their dividends. But this cash payout was restored on 13 September 2021, beginning with an interim payment of 0.67p per share.

At present, Lloyds shares offer a trailing (that is, historic) cash yield of over 5.1% a year, versus 3.7% for the wider FTSE 100 index. To me, that’s ample reward for owning this stock for the long term.

Third, Lloyds is buying back £2bn of its own stock in the open market. Doing this will reduce the size of its share base by around 6.6%. Over time, this boosts future earnings per share and dividend yields (all else being equal).

Finally, I expect the Lloyds share price to move substantially higher over the next two to five years. That’s because this stock trades on a lowly price-to-earnings ratio of under 6.5. And while we wait patiently for this re-rating, my wife and I will hold on tightly to our Lloyds shareholding!

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Cliff D’Arcy has an economic interest in Lloyds Banking Group shares. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »