After falling 15%, Lloyds shares look a steal to me

Seven weeks ago, things were looking rosy Lloyds Banking Group (LSE: LLOY) shareholders, with Lloyds shares riding high after hitting a 2023 peak. Since then, it’s been mostly down for the widely traded stock.

Lloyds stock swings

During a period of wider market weakness, Lloyds’ share price hit a 52-week low of 38.51p on 13 October 2022. It then rebounded as investor confidence returned.

At the peak of 2023, this FTSE 100 The stock was 54.33p on 9 February. Sadly for shareholders (myself included), the shares have recently sold quite a bit. Therefore, they are down 14.8% from the 2023 high.

Here’s how the stock has performed over seven time scales:

current price	46.27 p
One day	+1.2%
Five days	-0.8%
One month	-10.7%
Year to date	+2.3%
six months	+6.9%
A year	-5.2%
five years	-30.2%

Following this latest price weakness, Lloyds shares fell by more than ten in a month and lost 5% in 12 months. Even worse, the stock has fallen by more than three-tenths over the past decade and a half.

That said, these returns do not include cash dividends, which would add a few percentage points each year to the numbers above. Indeed, many investors – including my family – have bought into Lloyds specifically for its market-beating dividend yield.

Is this the 2008 anniversary?

Around the world, bank stocks look weak today. This follows the collapse of three mid-sized US banks, as well as emergency rescue from Credit SwitzerlandSwitzerland’s second largest bank.

However, I believe that 2023 will not be a repeat of 2008, when many major banks needed bailouts around the world. (I covered the 2007/09 global financial crisis (GFC) for this website and others.)

To me, this is nothing like the market crash of 2008, which was punctuated by weeks of financial crash and carnage. At the time, panicked commentators pointed out that capitalism itself was close to collapse.

Lloyds is a boring bank

Of course, Lloyds itself needed a taxpayer-backed bailout in 2008/09, totaling £20.3bn. After this failure, the Black Horse bank was completely rebuilt.

Today, Lloyds has more liquidity (access to quick cash), has higher assets on its balance sheet, and has a lower portfolio than in the GFC. Today, I mostly see it as a ‘boring’ mortgage bank.

As my title states, Lloyds shares look like a steal to me. Why? Firstly, because I would happily pay the current market price of £31.1bn to own the UK’s largest retail bank.

Second, because this stock is trading at a low price-to-earnings ratio of 6.4, for a corresponding earnings yield of 15.6%. That’s almost double the earnings of the wider FTSE 100.

Third, because Lloyds’ dividend yield of 5.2% per annum is about 1.3 times Footsie’s annual cash yield of around 4%. What’s more, Lloyds’ cash payout was covered three times by the end result. For me, this is a comfortable margin of safety.

Undoubtedly, 2023 is set to be a tougher year for banks than 2022. Weaker economic growth, rising bad loans, and higher loan losses are sure to hit bank profits this year. And a UK housing crash would be bad news for the Big Four banks.

Even so, if I had the money to buy Lloyds shares I’d be buying more now!