Lloyds Banking Group (LSE: LLOY) is one of the UK’s most widely held shares. That’s partly because 65,000 people work for the group, many of whom own company shares. What’s more, Lloyds is very popular with UK retail investors, with hundreds of thousands appearing on its shareholder register. Thus, the Lloyds share price is keenly watched, so here’s what happened to it in 2021.
The Lloyds share price in 2021: highs and lows
As I write on Thursday afternoon, the Lloyds share price stands at 48.43p, up 0.43p (+0.9%) on Wednesday’s close. On 31 December 2020, the stock closed at 36.44p, so it has added almost 12p this calendar year. That’s a healthy increase of almost a third (+32.9%) in 2021. This easily beats the FTSE 100 index’s gain of 15% since 31 December 2020.
However, the Lloyds share price has been somewhat higher — and much lower — this year. Last month, it hit an intra-day 52-week high of 51.58p on 2 November. It has since fallen back by 3.15p (-6.1%). Then again, Lloyds stock had a weak start to the year, hitting its 2021 intra-day low of 32.25p on 28 January. It has since soared by 19.33p from this bottom, surging by 60%. Happily, this vindicated my repeated arguments that it was a great recovery play for 2021.
Is Lloyds still a value play?
At the current Lloyds share price of 48.43p, the Black Horse banking giant is valued at £34.4bn. To me, this seems a modest price tag for a leading UK lender with 30m customers and market-leading positions and brands. But UK banking has been a difficult and troubled business since the global financial crisis of 2007-09. As a result, British bank shares trade on modest ratings today.
At present, Lloyds shares trade on a price-to-earnings ratio below 7.4 and an earnings yield of 13.6%. Those figures definitely appeal to me as a veteran value investor. But the UK regulator ordered banks to suspend their cash dividends in 2020 — and when they returned, they were rebased at lower levels. Hence, the Lloyds dividend yield (previously one of the FTSE 100’s highest) is just under 2.6% a year. That’s some way below the wider FTSE 100’s yield of roughly 4%. Still, these figures suggest to me that Lloyds shares remain firmly in value, unloved or overlooked territory.
Positive and negatives for Lloyds
When I look ahead to 2022-23, I see two negatives and two positives for Lloyds and its share price. First, the bank’s profits were greatly boosted this year by loss write-backs, as actual loan losses proved to be considerably lower than forecast. These gains are unlikely to persist next year, taking a chunk out of bottom-line growth. Second, Covid-19 is yet to be beaten, so further new variants might hit UK economic growth and Lloyds’ earnings next year.
Now for the positives. First, the Bank of England this month raised its base rate from 0.1% a year to 0.25%. This, the first rate rise for three years, will be followed by others in 2022 as the Bank seeks to curb rising inflation. Higher rates should lead to higher net interest margins (NIMs) for UK banks. Second, if Lloyds uses its billions of pounds of spare capital to keep lifting its dividend, then this could support the stock going yet higher.
In summary, I don’t own Lloyds shares, but I would buy today, while hoping for a sustained economic boom in 2022!