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At last! He Lloyd's (LSE:LLOY) share price finally looks to be living up to its potential. It's been long enough.
He FTSE 100 The bank's stock has seemed like a screaming buy for years, only to go nowhere. It was starting to look like the ultimate value trap. Cheap, high performance, profitable, but useless.
I kept the faith and invested £2,000 on June 2, when the shares were trading at 45.05p, and another £2,000 on September 8, when they fell to just 40.89p each. Then I sat back and waited to see if Lloyds' share price would ever show signs of life.
This FTSE 100 stock is up
And has! The wonders will never cease. The share price is up 25.53% in the last six months (although it is still down 7.83% in a year).
My £4,000 investment is now worth £4,957 including dividends, an increase of almost 24%. I love buying cheap stocks (when it works).
So how did Lloyds suddenly become an index-beating growth stock? The process began on February 16, when FTSE 100 rival NatWest Group posted a better-than-expected 20% rise in pre-tax profits.
NatWest soared, as did Lloyds, as investors anticipated similar strong results when it reported on 22 February. Lloyds did even better, announcing a 57% rise in full-year profits and a £2bn share buyback. The board also increased the dividend for the full year 2023 by 15%, to 2.76 pence per share. Happy Days.
It has been increasing since then. After ignoring good news for so long, investors have done an about-face and are choosing to block out bad news.
A Top Dividend Play
Lloyds has set aside £450m for regulatory investigation into car finance in the UK. Consumer advocate Martin Lewis has been speaking out about a scandal matching IPP mis-selling, which cost Lloyds more than £21bn. Are investors worried? Apparently not.
They also seem willing to overlook the fact that Lloyds' net interest margins – a key measure of bank profitability – fell from 3.08% to 2.98% in the fourth quarter. Margins are likely to fall further as the Bank of England begins to cut interest rates, but again, investors don't seem overly concerned.
A lot can go wrong with the Lloyds share price, but I'm not particularly worried. First, I now have a cushion against any falls. Second, I plan to hold the stock for years and years, so short-term volatility is neither here nor there.
I have plenty of dividends to look forward to, if I'm lucky, with a forecast 2024 yield of 5.67% rising to 6.26% in 2025. Lloyds isn't as cheap as it once was and is trading at 9.22 times forward earnings. . Although that is not excessive. I am very tempted to buy more shares at the current price of 52.68p. I am in no way selling. Who cares if something goes wrong? In the long run, I hope a lot more turns out well.
