I was bullish on Lloyds (LSE: LLOY) shares when they entered the year at 48p. Now at 41.7p, having fallen 13.1% since then, I think they could be one of the best bargains on the FTSE 100 right now.
I’ve slowly been adding to my position in the bank in the last 18 months or so. During that time, the stock has been fairly volatile. After dropping below the 50p mark in March of last year following the US banking crisis, it’s yet to break that barrier again. However, I’m hoping it can do it in 2024.
A lethal combination
There’s one main reason I’m a fan of Lloyds shares. That’s their cheap valuation coupled with a juicy dividend yield.
Let’s start with the former. As I write, Lloyds trades for 7.5 times earnings. That’s below the FTSE 100 average. On top of that, its price-to-book ratio, which compares its market valuation with its net asset value, is around 0.6.
The stock also yields 6%, covered over two times by earnings. With the passive income I receive, I’ll reinvest it into buying more shares.
A bright future
Lloyds has got off to a slow start in 2024. Higher-than-expected inflation figures for December were a stark reminder that we’re not totally out of the woods yet. News that the firm could face a fine of up to £1bn from the Financial Conduct Authority for its part in a motor loan commission scandal also sent the stock tumbling.
But in all honesty, I’m not bothered about that. Instead, I’m using the dip as a chance to top up my holding. That’s because I think 2024 could be a turning point for Lloyds.
Of course, I’m still expecting volatility this year and there are risks that I must consider. After all, the banks do face a tough year ahead. However, should interest rates fall, as many are expecting towards the back end of the year, I’d expect Lloyds to go on a tear. As the UK’s largest mortgage lender, cheaper borrowing costs will provide it with a boost.
There are other issues too. While lower rates will boost investor sentiment, it will impact Lloyds’ net interest margin. On top of that, the firm relies solely on the UK for its revenues — where most of its competitors have overseas operations, Lloyds doesn’t. This means should the domestic economy falter in the months ahead, the firm will suffer.
However, I think in the long run the UK economy will thrive. It was most recently predicted it’ll be Europe’s best-performing major economy in the next 15 years. The business is in a prime position to benefit from this.
A bargain
With that, at their current price, I’m planning to top up on Lloyds shares in the days ahead. The upcoming months may be choppy. However, I think long-term growth prospects for Lloyds look promising. Add to that a low valuation and high yield, and I see it as one of the best bargains out there at the moment.
