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The Lloyds share price has recovered 15% in 3 weeks. Should you buy now?

Alan Oscroft
·3-min read
Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Close-up Of A Piggybank With Eyeglasses And Calculator On Desk

Lloyds Banking Group (LSE: LLOY) shares have been picking up over the past few weeks. As I write, the Lloyds share price has regained 15% since its 52-week low set on 22 September.

That needs to be seen in perspective, mind. Since the start of the year, the price is still down 56%. And that’s for a stock already struggling since well before Covid-19 arrived.

As a dividend investor, I’ve been having a look at which FTSE 100 stocks will enable you to pick up the most new shares with your annual dividend cash. The fact that Lloyds came top, based on post-2020 forecasts, struck me. If you invest £1,000 in Lloyds, the predicted dividend would buy you around 200 new shares, almost three times the second-placed stock.

Low Lloyds share price

Now, that’s purely a result of the much lower Lloyds share price, and the absolute value of a share is largely meaningless. The true measure of a dividend’s value lies in its yield. And while Lloyds’ forecast yield is high at around 5.9%, it’s nowhere near the biggest out there.

But I do wonder if there’s some psychology going on here too. Do low share prices put people off simply because they’re low? Shares at £10 apiece really can instinctively seem a better and safer investment than shares at less than 30p.

Some of the best FTSE 100 shares in terms of forecast dividend yields are those that have suffered the worst during the lockdown crisis. Now, I’m not saying a fall in value for the Lloyds share price isn’t justified. It surely is. The Lloyds I bought was genuinely seeing the light at the end of the banking crisis tunnel.

It’s different now

There was no bumbling failure to reach a post-Brexit trade deal on the cards. In fact, there wasn’t even a Brexit at all to worry about at the time. And we certainly couldn’t see any global health crisis on the horizon. In our current, fundamentally-changed circumstances, I can clearly see my Lloyds shares aren’t worth what they were back then.

No, now the Lloyds share price has slumped, I’ll be among the first to accept that a fall in the value of my investment is justified.

But comparisons with the past value of shares is misplaced, as that old value isn’t relevant now. What does count is the value of a share when assessed in the light of the newly-changed circumstances. And on that score, I think the Lloyds share price is too cheap. Not against what I paid, but against what I think it’ll be worth in the future.

Long-term outlook

I think it’s increasingly likely we’ll have to adjust to a future in which Covid-19 is endemic and managed, rather than eradicated. And that future may well adversely affect all sorts of businesses. But beneath everything, we’ll still have strong demand for a well-functioning banking system.

The current Lloyds share price gives us a 2021 forecast P/E of only around eight. Against what I see as the longer-term future for the banking sector, I still see that as a buy.

The post The Lloyds share price has recovered 15% in 3 weeks. Should you buy now? appeared first on The Motley Fool UK.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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