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Lloyd's (LSE:LLOY) The stock has looked like a very cheap and obvious buy for a decade but repeatedly failed to live up to its potential. Now they have just suffered another false start. Is it time to give them up?
When the price dropped to 45p last June, I took the plunge and bought 4,403 shares for £2,000. I thought I had gotten a bargain, only to see them get even cheaper.
On September 8, I averaged out another £2,000, allowing me to buy 4,856 shares at 40.9p each. Six days later I received my first dividend. A whopping £40.34 I automatically reinvested to buy 94 more shares at 42.7p.
Is this a values trap?
For a while I felt smug. My only regret is that I don't have the money to buy more Lloyds shares, but that's life.
He FTSE 100 It finished 2023 brilliantly, as did Lloyds. Suddenly, he had made around £600 in total. I bought Lloyds on the assumption that its shares would regain their lost value once it became clear that interest rates had peaked and the Bank of England would begin cutting base rates.
That would lower savings rates and bond yields and make the current 5.67% dividend yield look even more attractive.
Unfortunately, investors had gotten ahead of themselves. They ended the year anticipating six extraordinary interest rate cuts in the United States in 2024, and four in the United Kingdom, and the first of them already in March.
Those assumptions now look overly optimistic, after UK consumer price inflation rose slightly in December to 4% while the US economy continues to chug along, suggesting it is too early to cut rates.
Over the last month, Lloyds shares have fallen 11.98%. This is a big drop for a supposedly strong FTSE 100 blue chip stock. Rival banks were not as affected by Barclays fell a modest 2.94% and NatWest Group falling only 1.38% during the month.
Concerns in the real estate market
I'm now down a modest 2.03%, but investors who bought Lloyds more recently will have fared worse. If you had invested £4,000 in shares a month ago, you would have suffered a loss of £479.20 on paper. My £4,000 would be worth £3,521. In twelve months, the shares fell 20.89%.
I don't see any obvious reason for the rapid decline. The long-awaited interest rate cut and subsequent stock market recovery may be on hold, but surely only for a few months. The only news of note I can find is the announcement that Lloyds is cutting 1,600 jobs as it continues to reduce its branch network, but that would normally lift stock rather than reduce it.
I can only assume it's because of the feeling. As the UK's largest lender, Lloyds has the most to gain when interest rates fall, and the most to lose if they stay high. If that's the case, they should be furious when the Bank of England finally turns dovish. We got a glimpse of that in December. That's what I trust, but who knows with Lloyds?
So it may have fallen straight into the UK's biggest value trap, but it should hopefully reap plenty of dividends – Lloyds is forecast to return 6.6% in full-year 2023 and 7.16 % in 2024. Even a modest rise in the share price would seem to be rewarding, so I'm happy to sit with my shares and wait. And wait.
