When I invested in Lloyds (LSE: LLOY) shares in 2023, they weren’t exactly red hot. I bought them in June that year and again in September, at an average entry price of 43.9p.
They’d actually fallen by half since peaking at 88p in 2015 as the sluggish UK economy and Covid took their toll. I decided they were too cheap to ignore any longer, with a price-to-earnings (P/E) ratio of around six or seven.
I wasn’t expecting fireworks, I just thought it was a good time to take a position in a core portfolio building, at a decent price.
Can this FTSE 100 bank continue to grow?
Lloyds has beaten expectations. Today, the shares trade at 67.5p, up an impressive 54%. If I’ve known that was going to happen, I’d have bought a lot more.
A large chunk of that growth came over the last year, with the shares up 37%. FTSE 100 rivals Barclays and NatWest did notably better though, rocketing 63% and 67% respectively.
The UK banking sector has enjoyed a long overdue re-rating, but Lloyds trailed due to its outsize exposure to the motor finance mis-selling scandal. That could cost it as much as £3bn in compensation, according to some estimates, while Barclays and NatWest have much less exposure.
Lloyds made a brighter start to 2025 but the last week has been bumpy for all three, as the world takes stock of Donald Trump’s tariff threats.
Inflation’s another worry, as it remains sticky. While this will help Lloyds maintain its net interest margins, it may hit economic activity and the property market. If more businesses fold, the housing market dips and people lose their jobs, this will hit the bottom line at Lloyds. So will the motor finance scandal, if it drags on and proves costly.
I bought Lloyds shares with a long-term view. Ideally, I hope to hold them for the rest of my life, and use the dividends to top up my State Pension.
I’m getting lots of dividends too
There’s no guarantee this will happen. Who can say which companies will still be around in 20 or 30 years’ time? But if Lloyds does last (and its history stretches all the way back to 1765), then my capital and dividends should be worth a lot more than they are today.
It’s the dividends that excite me most. I’ve received three so far, in September 2023, May 2024 and September 2024. Once I include those, my total return jumps from 54% to 66%. There’s more to come. My next Lloyds dividend lands on 20 May.
I’ll instantly reinvest the latest payout to buy more Lloyds stock, as I did with all the others. If Trump turmoil sends the Lloyds share price lower, my reinvested dividends will pick up more shares as a result. Which is some consolation.
The trailing yield has fallen to 4.7%, largely due to the rising share price, but it’s forecast to hit 5.1% this year, and 6% in 2026. So I’m not just getting a brilliant income, I’m getting a rising one too. Plus growth, with luck. I’m glad I bought Lloyds shares.
This post was originally published on Motley Fool
