Are Lloyds shares bargain buys at under 50p?

Despite a strong start to the year, Lloyds (LSE: LLOY) shares have struggled in recent times due to the problems we have seen in the financial sector and the impact on investor confidence.

In the last month alone, the stock has dropped more than 6%. More than that, the past five years have been pretty bleak, by the way FTSE 100 banks down over 25%.

Despite this, with the stock trading hands below the 50p mark, I think now could be a smart time to pick up some shares. Here is the reason.

Rates are increasing

While inflation has wreaked havoc on the market over the past year or so, Lloyds has benefited from the rise in interest rates that has taken place as a result.

With inflation continuing to rise in the UK (figures for February came in hotter than expected), the Bank of England has tightened monetary policy, with the base rate currently at 4.25%.

Lloyds has been the beneficiary of this, as higher rates allow banks to charge customers more when they borrow. In 2022, the underlying net interest income increased by 18%. And with the Bank expected to raise rates to the maximum, Lloyds should continue to reap the rewards.

Inflation concerns

That said, higher inflation is not all good news for business.

Firstly, with inflation still above 10%, the UK faces the constant threat of recession. Clearly, this will not be good news for Lloyds. And with a single focus on the UK, it risks more than its competitors.

Second, while benefiting from the BoE’s actions, higher rates mean more customers can pay off their debt. Again, this could have a detrimental effect on Lloyds’ performance in the near term.

That’s positive

Despite this, there are still many reasons to like Lloyds.

The stock offers a dividend yield of nearly 5%. And with inflation not expected to return to average levels until the end of this year, the passive income generated from investing can come in handy.

The stock also looks cheap to me. It currently trades at a price-to-earnings ratio of just under 7, which is about half the FTSE 100 average.

On top of this, I also think that the business is safe from the problems that have been seen in the last few weeks with other banks. The CET1 ratio, which compares capital to risk-weighted assets, stood at 14.1%, above the target of 12.5%.

Lloyds also has plenty of cash on hand, highlighted by the recent announcement of a £2bn buyback scheme.

So the stock is a bargain?

Under 50p, Lloyds shows the offer in the case? I think.

The bank will continue to make profits next month if interest rates continue to rise. And with a strong dividend yield and low price, I consider it a smart buy.

I already own Lloyds shares. And while I would love to increase my holdings at the current price of 48p, I don’t have any cash to spare right now. If this changes in the near future, I will definitely be rushing to buy some more shares!