The Lloyds Bank (LSE: LLOY) share price has had a good run in the last six months. Vaccine development and the stock market rally, being allowed to pay dividends again, and an improved economic outlook have given momentum to the stock.
So should I buy it now?
I’d consider the following three metrics first before making the call:
#1. Share price change
In the past half-year, the Lloyds Bank share price has risen more than 60%. This is strong growth, but the question I would ask here is – how does it compare to its peers’ performance?
Of the other FTSE 100 banking entities – Barclays, HSBC, Standard Chartered and NatWest – I compared it to the first two. Standard Chartered has not seen any appreciable share price increase in the past year and Natwest is loss-making right now, so they were not similarly comparable.
The Lloyds Bank share price has indeed risen faster than HSBC, which has grown 42%. But it is still far lower than Barclays’ 90% share price growth.
#2. Dividend yield
What the Lloyds Bank share lacks for in terms of price increase, however, it can make up for in dividend yield.
Here too, the Lloyds Bank share sits somewhere in the middle. It has a dividend yield of 1.5%, compared to Barclays’ smaller yield of 0.5% and HSBC’s higher yield of 2.5%.
Considering both share price increase and dividend yield in mind, the Lloyds Bank share is not unattractive. But I would bear two more points in mind here:
- There are FTSE 100 growth stocks with higher dividend yields around (like, Rio Tinto). I would look at these too, rather than restrict myself to banks.
- Banks’ dividends are capped for now by guardrails set out by the Bank of England. This is a temporary measure, but it does mean that banks’ yields are likely to be less competitive than other stocks for the time being.
#3. Earnings per share
To assess if it can pay a higher dividend, I look at the earnings per share (EPS) number as well. A higher EPS indicates that the bank can continue to pay dividends and possibly even increase them.
The Lloyds Bank share is in a weak place on this measure. Its EPS, at 1.2p, is way lower than that for both Barclays and HSBC at 8.6p and 19p respectively. While I would keep this in mind, given that 2020 was a bad year I would take it with a pinch of salt for now.
The verdict for the Lloyds Bank share
On the whole, based on these three metrics, the Lloyds Bank share does have merit. Right now, it is a growing stock that pays a dividend. Its dividend yield, however is low and going by its current EPS numbers, it does not look likely that this FTSE 100 stock will become a huge income generator anytime soon.
At the same time, I think things can improve for the Lloyds Bank share as the economy reopens and rebounds, and banks’ business takes off. It is on my investing radar.