Image Alt

The Investing Box

  /  Editor's Pick   /  The Lloyds share price: why does it drive investors crazy?

The Lloyds share price: why does it drive investors crazy?

A Lloyds tech engineer works on the bank's digital platform

The Lloyds Bank (LSE: LLOY) share price seems to drive investors crazy. Its value has been on a general uptrend over the past year, but is still down 25% from the pre-pandemic days. In fact, the share price hasn’t really recovered from the 2008 financial crash.

But Lloyds drives far more investor interest than almost any other publicly traded UK company, and I have had to ask myself…why?

Lloyds doesn’t pay a particularly exciting dividend, and the price has remained fairly stagnant since 2009. What is it about this bank that’s keeping investors hooked?

Share price fundamentals

On paper, Lloyds seems like a very safe investment. Its price-to-earnings ratio (P/E) hovers at a very respectable 6.93 and the bank has a CDP score of A-. Lloyds does offer a dividend but, as I said before, it comes in at 2.73%, well below the UK average of 4%. It does have a very high market cap at £32.25bn, although this is slightly lower than Natwest’s £32.98bn.

In fact, Lloyds and Natwest are both dwarfed by HSBC‘s £90.12bn market cap, 3.59% dividend yield, and equivalent CDP score of A-. At a cursory glance it seems to me that HSBC has always been the better investment, although its share price has failed to recover to pre-pandemic levels and the consistent allegations of money laundering have dogged the bank for as long as I can remember.

Marketing and branding

Lloyds has excellent brand recognition. There’s no arguing that. Its black horse is nothing short of iconic and the bank undoubtedly has the largest presence of any in the public zeitgeist. This could just be down to exposure. I don’t tend to watch adverts if I can help it, but Lloyds bank adverts are by far and away the most ubiquitous and memorable of any in the sector.

Warren Buffett has always stressed the importance of a business having a ‘moat’ or aspect which will protect it from the competition. Brand recognition is one kind of moat but from where I’m sat, it seems like that’s all Lloyds has going for it.

What about Lloyds future?

Over the course of 2021, Lloyds announced that it would be closing more than 90 of its branches across the country. It also made headlines for its plans to invest in build-to-rent homes around the country. Closing branches will help to cut costs but there is a chance that by shrinking its high street presence that it may hurt its branding.

Lloyds probably hopes that being a landlord will become more profitable than mortgage lending over the next few decades. I can see the logic behind this, especially with interest rates being so low right now.

But Lloyds has been profitable despite low rates and being a landlord incurs ongoing maintenance costs. On top of that, there is no guarantee of income if homes remain empty.

Honestly, I’m still unsure why retail investors seem so enamoured with Lloyds. It’s not a bad company, but to my eye, it owes most its popularity to branding.

Perhaps people expect the share price to shoot to the pre-financial crash highs, but I won’t be adding it to my portfolio any time soon.

The post The Lloyds share price: why does it drive investors crazy? appeared first on The Motley Fool UK.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

More reading

James Reynolds 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.