Lloyds shares: last chance to snap up a bargain?

Lloyds Banking Group (LSE: LLOY) shares are up 10% since Christmas. High street bank deposits have been one of the factors helping to raise them FTSE 100 to within a whisker of an all-time high.

Although Lloyds’ share price is still below pre-pandemic levels, it is certainly looking in the right direction. Is this the last chance for UK investors to pick up this banking stock at a bargain price?

Am I bullish on banks

For many Britons, rising interest rates are bad news. Anyone who needs a remortgage will feel the pain.

However, higher interest rates have been good news for the UK’s big banks. During the first nine months of last year, Lloyds’ net interest income rose 15% to £9.598 million.

Rising rates have allowed banks (and their competitors) to raise mortgage rates faster than interest rates on savings. This has boosted the banks’ profits, despite leaving a bad taste in the mouth for savers, who have seen the value of savings eaten up by inflation over the last year.

What are the risks?

I’m not surprised to see banks trying to rebuild their profits after years of ultra-low rates. But this situation is not without risk for them.

Alternatively, savers may choose to move their cash elsewhere, to a savings provider that offers more competitive rates. I must have done it.

The second risk is that the UK housing market is slowing as homeowners worry about the risk of a recession and falling house prices. If mortgage demand eases, big lenders like Lloyds may have to work hard to stay competitive.

In the worst-case scenario, the bank’s increased profits could be eaten up by higher debt levels on credit cards, loans and mortgages.

Are Lloyds shares still cheap?

Every stock market investment comes with risks as well as potential rewards. One way to manage risk is to try and make sure I don’t pay too much when I buy stocks.

The good news is that Lloyds still ticks a lot of boxes for value, on display.

At current levels, the stock trades at a forecast 2023 price-to-earnings (P/E) ratio of 6.5, with a dividend payout of 5.6%. Those numbers look attractive to me.

Another number I look at is the stock’s price-to-book ratio. It compares the stock price to the bank’s net asset value. Lloyds shares are now trading broadly in line with their last reported book value of 49p per share. That’s probably a decent value, in my opinion.

I’m not sure how Lloyds shares will do over the next year and beyond. But my analysis shows the bank’s profits – and share prices – can continue to improve from current levels.

Although the economic outlook is uncertain, the numbers suggest that Lloyds’ dividend should remain affordable, unless things get worse than expected.

I think Lloyds could be a good choice for investors looking for reliable dividend income.