The Lloyds Bank share price is up 60%. Would I buy it?

The Lloyds Bank share price has shown a sharp increase over the past year, but can it continue to soar?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Lloyds Bank (LSE: LLOY) has come a long way since last year. At this time in 2020, its share price had fallen to abysmal levels as we were still powerless against the pandemic.It has risen 60% since, however. Like all stocks sensitive to the state of the economy, it too became attractive to investors as prospects improved. 

However, a closer look at the trends in the Lloyds Bank share price reveal that not all is great with the stock right now. In the past three months, it has fallen some 12%. This is despite a rise in the FTSE 100 index in this time, on average. Some of this decline is not hard to understand. There have been some concerns about its future recently. 

What is holding investors back?

Rising Covid-19 cases and another potential lockdown are two issues. Because segments like banks are vulnerable to the resulting pullback in the economy, their share prices can react more than the overall index. Also, the rollback of the stamp duty holiday could impact Lloyds. This supportive policy buoyed real estate during the pandemic. And Lloyds Bank is the UK’s largest mortgage lender. Interest rates are also still low and while they could rise if inflation gets out of hand, that has not happened yet. As a result, the bank is limited in its ability to increase interest income. 

Lloyds Bank also has a low dividend yield of around 3%, which is below the average FTSE 100 yield of around 3.5%. It had a high dividend yield before the pandemic, but along with other financial firms, it was directed to first stop and then limit dividend payouts by the regulator. This may have been a big reason that it disappointed investors. The stock has seen limited capital gains in the past and dividends were a key part of its appeal. 

Positives for the Lloyds Bank share price

However, I think another possible reason for a sell-off with Lloyds Bank is stock rotation. Other shares that gained a lot after the November rally of last year saw a similar trend in recent months. This indicates a bias towards relatively beaten down stocks against those that have already run up significantly.But by this logic, Lloyds could also start picking up soon. 

And there are fundamental reasons to like it as well. Its performance has improved in the recent quarters, beating analysts’ estimates. A thriving economy works in its favour too. The UK economy has displayed sharp growth in the last quarter, and this trend could continue into the rest of the year. While its dividends are low now, they could improve over time. 

My takeaway

I think the odds are evenly balanced for the Lloyds Bank share price right now because pandemic risk has risen again recently. However, I still think that it can rise further from here if all goes well. We will know if that is the case soon enough. I would give it a month or so before I buy the stock. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »