Here’s why I think Lloyds shares are the best buy in the FTSE 100 now

The Footsie fell, yes! and Lloyds Banking Group (LSE: LLOY) shares on the slide again, hurrah!

What did I say? Of course these are difficult times right now FTSE 100 in a recent slump? I think quite the opposite, for several reasons.

Volatility like this happens all the time. This is an inevitable reaction to short-term economic news. Or political news. Or no news at all, just the market getting nervous about nothing.

interest rate

For now, the market is worried about interest rates staying longer. This is a genuine concern for people struggling to pay their mortgages and bills, of course.

A default would be bad news for Lloyds, the UK’s biggest mortgage lender. So, that kind of fear is behind the latest drop in stock prices.

Lloyds shares hit a top of 54p in February. Since then, they are down 12%. But I don’t think it’s because there’s any real analysis of the bank’s long-term prospects. That hasn’t changed, as far as I can see.

Bank sentiment

Barclays and NatWest has fallen too. So it should probably come down to general market sentiment. When it goes down, bank shares can take the biggest kick.

But interest rates will fall. And the UK will return to growth. What will happen to bank stocks? If it’s like the previous economic cycle, it could be in a new bull run.

I want to get in when it’s cheap, like now. It’s better that my favorite stocks are unfairly hammered. I buy shares to hold for at least a decade, and I will use the ups and downs every month to my advantage.

Cheaper now

I had thought Lloyds shares were among the best values ​​in the FTSE 100. But after this fall, the market puts it at only around half the value of the average Footsie. That is not true.

The dividend yield suddenly looks better now too. Estimates vary, but show around 5% for 2023. And in a difficult year. Earnings are predicted to continue to grow. And the dividend is expected to reach 6.5% in 2025.

If we wait for the economic outlook to brighten, it may be too late to lock in such an outcome. I will buy more Lloyds shares as soon as I save more cash.

Lost?

Now, of course, there are risks. Interest rates set to stay high longer than feared? On the one hand, it will be good news for the level of bank loans. But it probably won’t help you get a new mortgage.

I also think banking sector sentiment may remain poor for a long time. The collapse of Silicon Valley Bank in the US is a painful reminder of bad times.

Buy back

But Lloyds has just announced a £2bn share buyback, to return capital to shareholders. The board clearly thinks the stock is worth buying. I agree. And of course it should be better now that it has been dipped again.

Such a large return on capital also boosts my confidence in its long-term dividend prospects.