Lloyds shares are up over 10% in 2023! Is it time to buy?

Lloyds (LSE: LLOY) shares have failed to impress in recent times, with shares down more than 20% in the past five years. Racing inflation and declining investor confidence in 2022 continue to suffer as stocks in FTSE 100 banks fell 14%.

Despite this, 2023 has seen a Lloyds general meeting. Up 12%, the strong start to the year has almost reversed all the losses from last year.

So, now is the time to pick up Lloyds shares? I think. This is why.

Why rally?

One of the main reasons for the rise in the Lloyds share price is the rise in interest rates. With the Bank of England (BoE) recently raising rates to 4%, Lloyds is benefiting from this.

This is because higher rates allow businesses to charge customers more when they borrow, thereby increasing their net interest income. For Q3, underlying net income was up 15%, supported by growth in net interest margins. And with growth projected at 23% in net interest income for the upcoming Q4 results, it is clear to see why investors are keen on the stock year to date.

Looking ahead, when many think that interest rates are close to their peak, they are predicted to jump by more than 25-50 basis points in 2023. With this in mind, the business will continue to benefit in the coming months.

Not all news is good

While Lloyds shares have jumped this year on the BoE’s efforts to rein in inflation, the rate hike is a double-edged sword. Higher interest payments may see customers default on their loans. Clearly, this is bad news for banks.

Lloyds is also more vulnerable to a weakening UK economy giving it a greater domestic focus compared to its rivals. With the UK economy already in trouble, and with 2023 set to become unstable, Lloyds could suffer.

Stay positive

Despite this, I like the stock because of its dividend yield. Figures released yesterday indicated that inflation has decreased for the third month in a row to 10.1%. With a 4% yield, while it is not inflation-beating, the passive income generated from Lloyds Savings offers me a partial hedge. With unadjusted rates falling to more respectable levels for the foreseeable future, buying Lloyds makes sense.

The stock also has a low valuation. With a price-to-earnings (P/E) ratio of around 8.7, it is lower than FTSE 100 the average is about 14. It also has a forward P/E of only 7.

Should I buy it?

I have been tracking Lloyds shares for some time. And I recently decided to bite the bullet and add stocks to my portfolio. Its low valuation and high dividend yield make it an attractive proposition. And despite the threat of a weak UK economy, hopefully, the apparent benefits of high interest rates will allow Lloyds to offset this.

When I last bought Lloyds shares, I thought I had enough exposure. However, with an upward trajectory and a current price of around 53p, I still think it’s attractive. With this in mind, I will look to increase my holdings in the coming weeks.