Shares in the Black Horse Bank Lloyds (LSE: LLOY) are living up to their name as they gallop higher. They’ve broken the 50p mark and could well be on their way to hitting 60p.
That comes after a 10.6% rise in 2024. In the last six months, they’ve jumped 25.9%. As a shareholder, that’s refreshing to see. It has seemed the case for a while that while Lloyds certainly has potential, it hasn’t been able to deliver.
Nevertheless, it looks like that might finally change.
Better things to come
I’m optimistic about where Lloyds could head in 2024. The FTSE 100 has suffered blips but, on the whole, has been trending in the right direction. Interest rate cuts look imminent. Inflation figures are falling not just in the UK but also across the pond and in Europe too. Compared to the last few years, 2024 looks like it could be favourable for stock markets.
What’s even better, I’m bullish on Lloyds’ long-term prospects. Its price-to-earnings ratio sits just below seven. Its price-to-book ratio is 0.7. That shows, in my opinion, the stock’s undervalued and at today’s price still looks like a steal.
I’m in it for the money
There’s also another reason why I own Lloyds shares. It’s for income. The stock boasts a 5.2% yield, clearing the Footsie average of 3.9% by some distance. Its 2.76p per share payout for 2023 is covered just shy of three times by trailing earnings, which is a solid margin.
A few hurdles
Just like jump racing, investing also comes with hurdles. For Lloyds, I see a few. Falling interest rates will have a negative impact on Lloyds’ earnings. It benefitted last year from higher rates as its underlying net interest income climbed 5% to £13.8bn. However as rates fall, these margins will shrink.
On top of that, it’s predicted the UK economy will struggle for growth this year, which could see the business suffer in the months to come. That may mean today’s higher share price is another false dawn and the price could even fall.
Jumping higher
But there are upsides to falling rates too. Firstly, I don’t see us getting anywhere near the low-level base rate we’ve become used to for the last decade, or so. That could leave us in the ‘Goldilocks Zone’ with rates sitting between 2% and 3%. For banks, this will offer a boost.
Secondly, falling rates should lift investor sentiment. More vitally, it’ll also help stabilise the property market. That’s massive for Lloyds as its the UK’s largest mortgage lender.
A lot more to give
I’m sure shareholders will endure more volatility but I think Lloyds shares have a lot more to give. And there’s a lesson in that.
On paper, the high street bank looks like a boring old Footsie stock. Granted, its share price performance in the last few years has been largely uninspiring.
But in the long run, I see real value in the stock today. It’s an industry stalwart with strong fundamentals that many investors are passing up.
I own a number of shares that fit a similar bill. And I intend to do so for a very long time. That’s how I’m hoping to build my wealth.
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Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer 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 diverse range of insights makes us better investors.
