If I’d invested £1,000 in Lloyds shares 15 years ago, here’s how much I’d have now!

Lloyds (LSE: LLOY) shares don’t always trade at penny stock levels. In fact, before the global financial crisis devastated the banking sector this century, the mid-1990s was the last time I was able to buy these shares for less than £1.

Since 2008, Lloyds’ share price has never recovered to pre-crisis levels and has been anchored below 100p. As I write, the FTSE 100 Stock is changing hands at just 52p short.

Let’s take a look at the return I got from a £1,000 investment 15 years ago as well as an insight into the bank today.

15 years back

Back in January 2008, Lloyds Bank was trading for 278.18p per share. Over the next 12 months, share prices fell off the cliff in the fall that hit banking stocks after the collapse of Lehman Brothers.

On this day 15 years ago, with £1,000 to invest, I was able to buy 359 shares, leaving £1.33 in spare change.

Today, my original £1k investment would be a fraction of that size. After patiently waiting for the recovery, my shareholding will be worth £186.32. This is a dangerous result, proof that a major economic crisis can damage an investor’s portfolio.

During that period, I will receive some dividends to soften the blow after the banking group started repayments in 2014. If I had not reinvested the dividends, I could have added £62.38 in passive income to my total return, giving the figures. from £248.70.

Today’s insight

Today, the picture for Lloyds shares is a bit different. Capital requirements at big banks are now 10 times higher than before the crisis. They are also now disciplined with leverage ratios, which protect the system from significant risks.

The Common Equity Tier 1 (CET1) ratio is higher than before the crisis. This measurement compares a bank’s capital to its risk-weighted assets to determine its ability to withstand financial distress. Lloyds has a pro forma CET1 ratio of 15% from 27 October 2022.

In addition, the Bank of England now has a greater supervisory role. Conduct stress tests to ensure banks have the strength to weather a severe recession without defaulting on debt.

This does not mean that banking stocks are risk-free. As the UK’s largest mortgage lender, Lloyds is exposed to fluctuations in the housing market. This could be a major headwind for share prices if there is a property downturn this year. However, I think banks are safer than they were 15 years ago.

Rising interest rates should help the group with net interest income. What’s more, the stock is a useful passive income generator with an annual dividend yield of 4.1%.

Should I buy Lloyds shares?

I already own Lloyds shares, and I will continue to hold them. I believe the stock price represents fair value today, and the dividend is definitely handy. But if there is a significant decline in 2023, I will consider buying more.

With today’s stricter regulations, hopefully we won’t have a repeat of 2008. However, it’s always useful to look to history for important investment lessons today.