As I continue my search for high-quality companies that I can snap up (and hopefully see some handsome returns on in the years and decades ahead), I can’t help but wonder why the Lloyds (LSE: LLOY) share price is so low.
Share price history
It’s been a torrid time for Lloyds shareholders as of late. And looking back on the stock’s performance in the past few years doesn’t make for a pretty viewing.
Five years ago, I could have snapped up a share in the bank for 58p. Today, I could pick one up for less than 44p.
The last 12 months have offered investors some optimism, with the stock rising, albeit by little more than 2%. Year to date, however, its almost-8% fall is more telling of the struggles it’s been through.
Lloyds concerns
This track record is concerning. And I can see why some would question my bullish stance on Lloyds.
Clearly, a threat to Lloyds of late has been red-hot inflation. With global rates touching levels not seen in decades, the financial sector has taken a large hit this year.
As a result, central banks, including the Bank of England, have set out on aggressive rate hike cycles. And while the business has seen a major jump in its net interest income as a result, higher rates mean customers are more likely to default. For the first half of 2023, impairment charges sat at £662m.
Its UK focus may also be a deterrent for investors. Where its competitors offer a more diversified business model, Lloyds’ domestic focus makes it more prone to any blips in the UK economy.
Some positives
Despite these concerns, I remain optimistic. And as a Fool, I’m not worried about where the share price will be in 10 weeks or months, but instead 10 years.
With that in mind, I’m a big fan of the strategy implemented by Lloyds early last year. As part of this, the business, spearheaded by CEO Charlie Nunn, plans to invest over £3bn to diversify its revenue streams. As a long-term investor, these are encouraging signs.
Solid passive income
On top of that, I’m slowly building an investment portfolio that provides me with a solid passive income. And Lloyds is a big part of this.
As I write, the stock provides a dividend yield just shy of 6%, which is around double that of the average of its FTSE 100 peers. And while it doesn’t beat inflation, it beats leaving my cash sitting in a bank.
Of course, with dividends, I’m always aware they can be reduced or cut altogether at any time by a business. However, with Lloyds’ dividend covered over three times by earnings, I’m confident in the firm’s capacity to pay out. With forecasts next year placing the yield closer to 7%, there may also be room for growth.
Bargain or trap?
At its current price, I see Lloyds as a bargain. Trading at around five times earnings, I see value. And with it building foundations for the future, I’m hopeful it will deliver. The passive income opportunity is an added bonus too.
In the weeks ahead, I plan to top up my holdings with any spare cash.
