On Monday, I argued that the FTSE 100 has been a serial underachiever all the way back to the start of this century. The point of my history lesson was to show that although the index has disappointed, a few FTSE 100 members have done exceptionally well.
The FTSE 100 has been a flop
To continue my history lesson, here’s how the UK’s main market index has performed over three recent time periods (excluding dividends):
Six months: -16.5%
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One year: -17.7%
Five years: -19.9%
Note again that these FTSE 100 returns don’t include regular cash dividends. Adding dividends of, say, 4%+ a year will improve these results, possibly into a modest positive return for the FTSE 100 over the past half decade. Huh.
But the FTSE 100 is just an average
At its current level of 6,218, the FTSE 100 also stands 19% below its 2020 high (7,675 on 17 January) and 21% below its all-time high (7,877 on 22 May 2018).
That said, it’s important to note that, as a market index, the FTSE 100 tracks the aggregate value of its members. Its levels don’t tell you anything about how any individual member has performed. Of course, some of these companies have been bright stars, while others have been complete dogs.
Lloyds has been a huge flop
Among the dirty dogs of the FTSE 100, Lloyds Banking Group (LSE: LLOYD) stands out for its superior loss-making abilities. Here’s how the Lloyds share price has performed over five time periods:
Six months: -46.9%
One year: -46.3%
Two years: -51.2%
Three years: -55.6%
Five years: -65.2%
As you can see, over all five holding periods, Lloyds has been a truly awful share to own. Indeed, over the past five years, it sits fourth from bottom among all FTSE 100 shares. Given this awful performance, it’s a wonder that Lloyds still has any shareholders at all.
The past is done. Look to the future.
Once upon a time, in early 2007 and before the global financial crisis of 2007–09, the Lloyds share price hovered around £4. But that’s ancient history now, as both Lloyds and the financial world have changed drastically over the past 12 years.
As a value investor, I look at the Lloyds share price today and wonder how much lower it could go. For the record, this year’s low was 27.1p on 14 May and, at 30.3p now, Lloyds is up 11.8% since.
Lloyds is now valued at £21.6bn – a fraction of its peak value, but a business powerhouse nevertheless. For now, the bank is in a world of pain, with UK loan defaults and losses set to soar. Likewise, near-zero interest rates, combined with soaring unemployment and falling house prices, are bad news for FTSE 100 banks. Also, earnings for 2020 could be totally wiped out – and there’s still Brexit to come.
Then again, Lloyds has several low-risk, high-quality, profitable businesses under its bonnet, including the UK’s largest mortgage book. The bank also holds a huge buffer of capital to offset Covid-19 losses. What’s more, economic recovery as the coronavirus abates will eventually trigger the return of Lloyds’ formerly chunky dividend.
In short, in the hope of the return of a decent dividend, I’d buy Lloyds today, grit my teeth and hold on for dear life!
