It always seems like a good time to buy Lloyds (LSE: LLOY) shares to me, as they’ve looked great value for several years. Yet there’s little point buying cheap shares if they never actually grow.
Over the last five years, the Lloyds share price is down 28.65%. It is up 6.24% over the last 12 months, but now it’s going backwards again. This stock seems really vulnerable to bad news, while failing to benefit from the good.
Lloyds is still living in the long shadow of the financial crisis, as investors continue to view FTSE 100 banking stocks with caution. February’s banking sector meltdown didn’t help, even if the UK never came close to suffering contagion.
The financial crisis has also forced Lloyds to shift out of high-risk investment banking, and play safe by sticking to everyday consumer and business products such as savings, mortgages and loans.
Low-risk, but still risky
Some reckon it’s boring as a result, but that doesn’t bother me. I hold Lloyds as part of a balanced portfolio, and its prime role is to supply me with a steady stream of rising dividends that I will reinvest back into my portfolio for growth, then later draw as income. While a little share price action would be welcome, I hope to get that elsewhere.
The big problem is that Lloyds is almost 100% exposed to the ailing UK economy and now we have the small matter of a mortgage crisis and possible house price crash.
A lot of scary figures are being bandied around, with 2.5m fixed-rate mortgages coming up for renewal over the next 18 months (and millions more after that). Homeowners look set to pay an extra £300 a month when they remortgage at higher rates, on top of the cost-of-living crisis and higher tax burden. Tough times.
This will inevitably lead to a rise in arrears and forced repossessions. Lloyds could struggle to get its money back when selling homes in a falling market. Business customers are likely to struggle too. While Lloyds should enjoy wider net interest margins as base rates rise, that may not be enough to compensate.
I still can’t resist it
Which brings us to the Lloyds share price, which is back below 45p again. Last week I glanced at my trading history and saw that’s the trigger for me to pile into its shares. With the stock valued at 6.2 times earnings, it’s tempting for bargain hunters.
The forecast yield is now 6.3, covered 2.7 times by earnings. That’s one of the more generous dividends on the FTSE 100, and more secure than many too. So today’s 45p looks like a good time to buy Lloyds shares. But can they actually grow?
I’m expecting it to take some time. Investors are down on the UK economy right now, and Lloyds is directly plugged into its fortunes. I don’t have cash to spare right now, but I think today’s buying opportunity could be around for a few months, and I hope to take advantage when I’ve built up my ammunition.
In the meantime, I’ll keep reinvesting the dividends from my existing stake at today’s temptingly low price.
