Stock market

Lloyds share price is rising! What could go wrong?

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at last! gave Lloyd’s (LSE: LLOY) share price finally appears to be living up to its potential. It has taken a long time.

gave FTSE 100 Bank shares seem to have been screaming buys for years, only to have nowhere to go. It was starting to look like the ultimate value trap. Cheap, high yielding, profitable, but hopeless.

I kept faith and invested £2,000 on June 2 when the stock was trading at 45.05p and another £2k on September 8 when it fell to just 40.89p. Then I sat back and waited to see if the Lloyds share price would ever show signs of life.

This FTSE 100 stock is up.

And he has! Wonders will never end. The share price is up 25.53% over the past six months (although it is down 7.83% over the year).

My £4k investment is now worth £4,957, including dividends, an increase of around 24%. I love buying shares cheap (when it works).

So how did Lloyds suddenly turn into an index-beating growth stock? The process began on February 16, when the FTSE 100 took off. Natwest Group Pre-tax profit grew by a better-than-expected 20%.

NatWest rocketed, and so did Lloyds when it reported on February 22, as investors expected similar good results. Lloyds fared even better, announcing a 57% rise in full-year profits and a £2bn share buyback. The board also increased the 2023 full-year dividend by 15% to 2.76p per share. Happy days.

It has been on the rise ever since. After ignoring the good news for so long, investors have turned around and are choosing to hold off on the bad news instead.

A high profit game

Lloyds has earmarked £450m for a regulatory investigation into UK motor financing. Consumer champion Martin Lewis is speaking out to combat PPI mis-selling as a scam, which has cost Lloyds more than £21bn. Are investors worried? Apparently not.

They also appear willing to ignore the fact that Lloyds’ net interest margin – a key measure of banking profitability – fell to 2.98% from 3.08% in Q4. Margins are likely to fall further when the Bank of England starts cutting interest rates, but again, investors don’t seem unduly worried.

A lot could go wrong with Lloyds’ share price but I’m not particularly worried. First, I now have a cushion against any drops. Second, I plan to hold the stock for years and years, so short-term volatility is neither here nor there.

I have plenty of returns to look forward to, if I’m lucky, with a forecast yield of 5.67% in 2024 rising to 6.26% in 2025. Lloyds is not as cheap as it was, trading at 9.22 times forward earnings. It’s hardly excessive though. I am strongly tempted to buy more shares at today’s price of 52.68p. I am not selling. Who cares if something goes wrong? In the long run, I’m hoping to get a lot more right.


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