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It feels like 2008 all over again. Still, lloyds (LSE: LLOY) shares have held up well so far this year.
Lloyds Banking Group has a good dividend yield of around 5.7%. Is it time to top up my stake in this bank?
Retail banks can be viewed as leveraged bond funds. Regulators forced retail banks to buy more and more “safe” bonds since the 2008 financial crisis.
Those bonds are trading much lower in the market now.
Lloyd’s of London insurance market has just posted a £800m pre-tax loss. The loss was caused by a £3.1bn drop in the value of the investment portfolio.
Now, guess what that investment portfolio was largely made of?
Government bonds…
Silicon Valley Bank (SVB) drew unwanted attention from financial markets after making losses on bond sales.
Now the market is playing a game of whack-a-mole
All these regulations and compliance rules added since 2008 haven’t exactly settled anything.
If a bank’s share price falls too much, deposit holders start withdrawing money.
All banks are leveraged up to their necks and none can survive a bank run.
Fortunately, Lloyds Banking Group still has the confidence of the market. I am a happy long-term shareholder.
However, I will not add anything to my position.
The bank’s management cut the dividend in recent years. Dividend-reducing stocks tend to underperform on average going forward.
As seen in 2008, banks can go from hero to zero very quickly. My investments in broad-based stock market ETFs already give me more than enough exposure to bank stocks. There is no need to duplicate.
In any case, shareholder property rights are not held in high regard in the banking industry these days.
The owners of SVB UK recovered £1 for their troubles. Some call the banks non-investable as a result.
Wall Street vs. Main Street
The king of the UK’s high street sausage roll is greggs (LSE: GRG). The dividend yield is much lower, around 2.4%, excluding special dividends.
Blockages are a risk for this stock. In 2020, investors had to do without a Greggs dividend.
The popular pastry chain has raised the price of the sausage roll four times since 2021 from £1 to £1.20 now. Still, the bakery chain has a good value proposition compared to others like starbucks and Pret a Manger.
The company has pricing power. The stock is trading at a price-earnings ratio of 23.
Greggs worked hard in 2022 to effectively sit still. The advantage of higher sales was eaten up by higher costs.
Longer opening hours may boost sales this year.
At the same time, the impact of higher tax rates on profits is negative.
Have your sausage roll and eat it
I would rather buy more shares in Greggs than in Lloyds.
In a market sell-off, this investor will try to get more shares in the sausage roll maker. Stocks are not cheap enough to be in a hurry today.
For now I will buy the sausage rolls at your stores instead!
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