Am I mad to think of Lloyds Banking Group (LSE: LLOY) shares in terms of loving them?
Lloyds has lost me a packet of cash in the past 10 years. And we should keep emotion well away from our investments, right?
But it would surely take a robot to look at the Lloyds share price chart and maintain a steely coolness.
Love that dividend
Those of us who invest for long-term income love a good dividend, don’t we?
We’re looking at a forecast Lloyds dividend yield of 5.9%, with the punters putting it up above 7.5% by 2025. What’s not to love about that?
I see NatWest Group on an even higher yield, of 6.9%. And again, forecasts show it going up and up. Do I see another vying for my affections?
The bank sector in general has what look like some of the best FTSE 100 dividends on offer. And they’re backed by forecast earnings rises.
Falling shares
If we want to buy a thing, we love to get it cheap, yes? It’s like ace investor Warren Buffett said about burgers. If we want to keep eating them, we should cheer when beef prices fall.
So if I want to keep buying Lloyds shares, I should want them to keep getting cheaper too. But that’s harder to get my head round and still keep calm.
I’ve topped up my Lloyds shares several times, each time at a lower price. But then, many investors have kept putting money into falling shares only to see them go bust, and them lost the lot.
How can I tell I’m not doing the same with Lloyds shares, based on some sort of gut feel that I must be right?
How cheap?
Well, never forget valuation. The Lloyds price-to-earnings (P/E) ratio is only six. That’s super low by Footsie standards.
NatWest looks similarly cheap. Oh, and Barclays is on a P/E of only a bit over five. Hmm, I might not have enough love to go around here.
P/E alone can be misleading. And a very low one can be valid, especially if the outlook is poor. So I want to look at liquidity, forecasts, cash flow, and all the rest.
And, I do see risks with the banks in today’s economy. Lloyds could be at more risk than most, with its exposure to the housing market — it’s the UK’s biggest mortgage lender.
Balance
So yes, I want to buy more Lloyds shares, again. And I know there’s a very real chance they’ll fall after I buy, again. If bad loan impairments are big this year, Lloyds could fall more than I fear.
I also know that it’s just not possible for me to put all emotion out of the picture, and analyse everything 100% rationally.
I think the key is to keep a balance, and not get too excited about the riches I think Lloyds might one day bring me. And I don’t want to turn my back on the emotional draw of the stock market — it’s all part of the fun.
