The past year hasn’t been ideal for shareholders of Lloyds Banking Group (LSE: LLOY). These include my wife, who paid 43.5p each for her Lloyds shares, bought in July 2022.
Lloyds shares slide
At its 52-week high, the Lloyds share price peaked at 54.33p on 9 February. Alas, within a month, a US banking crisis sent financial stocks plunging worldwide.
Of course, Lloyds stock followed suit, hitting a closing low of 44.17p on Wednesday, 31 May. As I write, the stock stands at 44.98p, up 0.7% today. Here’s how it has declined over six different timescales:
| Five days | -2.2% |
| One month | -5.7% |
| Year to date | -4.6% |
| Six months | -3.6% |
| One year | -1.4% |
| Five years | -28.5% |
Over all periods ranging from five days to five years, Lloyds shares have lost value. Over five years, they have dived by almost three-tenths. Over the same period, the FTSE 100 index is down just 1.5%, making Lloyds a Footsie laggard.
Then again, these figures exclude cash dividends, which have been generous at Lloyds in the past (except during 2020-21’s Covid-19 crisis). Thus, adding back these dividends would provide a sizeable boost to the above returns.
The shares look cheap to me
One thing to note is that, generally speaking, UK banking stocks trade at sizeable discounts to the wider market. This is due to a combination of factors, including the ghosts of the 2007-09 global financial crisis still haunting bank shares today.
Even so, Lloyds looks like an attractive buy-and-hold stock to me. At present, the entire group is valued at just £29.2bn — a modest price tag for one of the UK’s Big Four banks.
Likewise, the shares trade on a lowly price-to-earnings ratio of 6.2, for an earnings yield of 16.1%. That’s at least double the FTSE 100’s earnings yield today.
Also, for value/income/dividend investors like me, the stock offers a dividend yield of 5.3% a year, covered three times by earnings. To me, this huge margin of safety suggests there’s little risk of this cash payout being cut in 2023. Indeed, I’m hoping for dividend rises in 2023-24.
It’s not easy being a big bank
On the other hand, it’s not easy being one of the UK’s leading lenders at present. Sky-high inflation has created a cost-of-living crisis here in the UK. Also, soaring energy bills have put pressure on households, reducing disposable incomes.
What’s more, rising interest rates have pushed up mortgage rates, making home loans more difficult to service. As a result, house prices are falling at their fastest rate in 14 years. Hence, I expect Lloyds’ loan losses and bad debts to rise in 2023-24.
Summing up, I can see both positives and negatives surrounding Lloyds shares at this time. Also, this stock has been a value trap for many, many years. Lack of cash prevents us from buying more Lloyds shares for now, but my wife and I won’t be selling our existing stake either!
