The Lloyds (LSE: LLOY) share price jumped nearly 6% in May, outperforming the FTSE 100, which rose around 1%.
The stock’s got off to a strong start to 2024, rising 15% year to date. That makes a pleasant change from its frustrating performance over the last five years. During that time, the stock’s down 3.6%.
But looking forward, what could June have in store for the Black Horse Bank?
The month ahead
The factor that will likely have the largest impact on its share price this month is actions around interest rates.
It’s now predicted that we’re in line for the first rate cut in August. While some predicted cuts earlier, at last month’s Bank of England (BoE) meeting, the Monetary Policy Committee held the base rate at 5.25%.
At the same time, Andrew Bailey, the governor of the Bank, said he needs to “see more evidence” of falling inflation before cutting rates.
The next time the committee will meet is 20 June. Investors will be keeping a close eye on any further comments from the BoE. With UK inflation falling to 2.3% for April, less than expected, it seems nailed on that the base rate will remain the same for now. But any signs of the BoE pushing back cuts could see the stock wobble.
The bigger picture
Nevertheless, regardless of how the stock performs in the upcoming months, I’m more focused on the bigger picture. And at today’s price, I see long-term value in Lloyds shares.
I think the stock looks dirt cheap. It currently trades on just 7.3 times earnings, comfortably below the Footsie average of 11. By 2026, that’s predicted to fall to just above six.
The bank also looks like a good deal when assessing other valuation metrics. For example, its price-to-book ratio is 0.7 where 1 is considered fair value.
Passive income
As well as its attractive valuation, I also like Lloyds for the extra income it provides. It boasts an impressive 5% dividend yield, above the 3.6% Footsie average. Off the back of a strong 2023, the business upped its dividend by 15% while also announcing a fresh £2bn share buyback scheme.
Shrinking margins
While I’m bullish on Lloyds’ prospects, I do have a few concerns. Banks have been major beneficiaries of high interest rates in recent years. But the wide margins they’ve been enjoying are shrinking. For example, Lloyds’ underlying net interest income fell by 10% in Q1.
On top of that, Lloyds generates its revenues solely from the UK, meaning it’s not as diversified as some of its peers. With ongoing economic uncertainty surrounding the domestic economy, this could also spell trouble in the upcoming months.
A long-term hold
However, while I’m expecting some volatility along the way, I plan to hold onto my Lloyds shares for a very long time. Falling rates will dent margins. But they should also help uplift investor sentiment, which could help push up the Lloyds share price in the years to come.
I’m confident that at its current price, the stock still has growing room. With the passive income I receive, I’ll reinvest it back into buying more dirt cheap shares.
