Lloyds share price is up 50%. I would buy anyway.
Actions in Lloyds (LSE: LLOY) have had a strong performance lately. Over the past 12 months, the Lloyds share price has increased by 50%.
Even after this increase, I would still buy Lloyds stocks for my portfolio. Here are three reasons why – and a risk I see.
Leading position in the street
Lloyds itself has a well-known brand and an iconic dark horse logo. Not only that, the group owns other banking brands with regional strength, such as Halifax and Bank of Scotland.
This means that the company is well positioned to continue to attract new businesses in the future. With an extensive branch network, growing online presence and a leading position in the mortgage market, I consider Lloyds’ brand awareness in the minds of clients to be an asset. This should help the company to continue to generate substantial income and profit in the future.
Clear strategic direction
Banking, when done efficiently and prudently, can be very profitable. History shows that many banks stumble by getting involved in exotic markets or expensive investments without properly assessing the risk. This is what caused the last financial crisis – but it is also what caused many bank failures in previous centuries.
Lloyds has a very clear strategy. I think this might help support the Lloyds share price. It is resolutely turned towards its domestic market. It also specializes in retail banking and commercial banking. So, for example, it does not have the investment banking exposure of its competitors Barclays, or the global presence of UK listed banks such as HSBC and Standard Chartered.
This risks reducing profits when other markets outperform the UK, for example. But it also reduces risk in my opinion, making the whole business easier to understand and manage. On top of that, it makes sense to focus on the UK bank as a way to capitalize on its strong position in this market.
Impact of dividend on Lloyds share price
The company has reinstated its dividend. While still limited by its regulator on how much it can pay, Lloyds is currently paying the maximum it can. He also indicated his intention to return to a progressive dividend policy.
At the same time, the company’s CET liquidity ratio of 16.7% is well above its target of around 12.5%. Simply put, this means that the cash he could use to fund future dividends has increased.
As the dividend increases, I would expect this to help increase the Lloyds share price. So I would still buy the bank’s shares today, both for income and growth potential.
Lloyds share price risk
However, all stocks come with risk and this is the case with Lloyds.
For example, the strong exposure to the UK property market may be positive right now. But if the real estate market slows down, that could leave the bank to feed hefty bad debt provisions. It could hurt both income and profits.
My next move
I already have Lloyds in my wallet. But I still see it as an attractive investment opportunity at the current price. I would consider adding more Lloyds shares to my stake.
The Post Lloyds share price is up 50%. I would buy anyway. first appeared on The Motley Fool UK.
christopherruane owns shares of Lloyds Banking Group and Standard Chartered. The Motley Fool UK recommended Barclays, HSBC Holdings, Lloyds Banking Group and Standard Chartered. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a wide range of ideas makes we are better investors.
Motley Fool United Kingdom 2021