Lloyds shares: I’m buying more before it’s too late

Get the share price back above the 50p mark Lloyds (LSE:LLOY) is struggling to make it through 2022. However, it found a breakthrough in January as the bank’s shares are now up more than 10% this year. With that in mind, I will be buying more Lloyds shares in the coming days.

Interest takes up

This week, the Bank of England (BoE) raised interest rates by another 0.5%, bringing the bank rate to 4%. This is good news for FTSE 100 stalwart because it continues to expand net interest income due to higher rates. This is because Lloyds’ assets continue to generate greater profits than their liabilities.

The institution has around £80bn of assets deposited with the central bank which means the new rate hike will add another £400m to its income. Consequently, the bottom line should see an improvement this year, which could result in higher dividends.

Before the current rate cycle, Black Horse banks were not known for their giant dividends. But thanks to recent advances, analysts now expect payments to increase by 13% this year. This will bring the dividend yield to 5.2% if I want to buy Lloyds shares today, which can make a decent passive income generator.

Banking on a soft landing

Higher interest rates can also be a double-edged sword, however, as customers are more likely to pay off debt. This may result in the bank having to set aside a fraction of its profits to cover the charging of these defects. However, the disruption should be swift, as the BoE signals a potential pause in the hiking cycle with inflation starting to ease.

More importantly, BoE Governor Andrew Bailey now expects the coming recession to be shorter and less severe than expected. This should reduce the upward pressure from noise charges.

Higher ratings

These tailwinds have led some brokers to upgrade their ratings for the stock. Goldman Sachs in particular, very bullish on the group with a price target of 76p. This would give me an upside of 46% if I bought Lloyds shares today. What’s more, this bullishness is echoed by other investment banks, with RBC label “preferred stock“, and UBS just his name”purchase confidence“.

This optimism is also unfounded. There are already low company valuation multiples, and they also have a strong balance sheet to complement this. Having a CET1 ratio of 15% and a liquidity ratio of 146%, the conglomerate has enough cash to provide in the event of mass withdrawals.

For that reason, I would buy more Lloyds shares to maximize the upside potential and before it gets too expensive.