As global markets continue to be choppy, investing in Lloyds Bank (LSE: LLOY) shares offer me a healthy dividend yield, access to a company with significant tailwinds and, perhaps crucially, the chance to benefit from a new growth-focused strategy.
Britain’s biggest mortgage lender ushered in a new chief executive officer less than a year ago, and he is pushing growth as “a core focus”.
I know, I know, banks are boring and aren’t creative enough to grow at pace. But a desire to be more innovative and re-shape Lloyds does seem apparent.
The bank wants to buy 50,000 homes of its own over the next decade to become a gigantic landlord. This will offer a new income stream and – more importantly in my view – points to substance in the company’s vow to do things differently.
There are already good things happening, anyway.
Last year, Lloyds grew its mortgage lending by £16bn – its biggest jump in over a decade. In Q1 of this year, the bank posted net income of £4.1bn – a 12% year-on-year rise.
It offers investors a 4.5% dividend return – higher than that delivered by shares in Barclays or HSBC.
It also leaves the same two companies trailing in its wake with a return on equity of over 10%. That means that for every £1 hopeful investors like us place in Lloyds Bank shares, recent results point to us earning 10% on our money. Lloyds wants this at 12% by 2024.
And why might things get better?
Banks like to see their net interest margins grow. That figure is the difference between the interest they receive on things like loans or mortgages and the interest they pay to savers.
So in times of inflation – like now – the Bank of England’s move to raise interest rates should help Lloyds in theory.
In the last year or so Lloyds has seen its net interest margin grow from 2.54% to 2.68%, and it has now said it expects it to reach 2.7%.
This is a key vehicle to added profitability. In addition, Lloyds Bank is cutting costs, with a desire to reduce office space and bank locations by 30%. It wants to cut operating costs by £700m in less than a decade.
And with all of this, Lloyds Bank shares are down around 10% in 12 months, offering a value opportunity.
I also like the benefit of Lloyds possessing a degree of customer captivity. Yes, we can all switch mortgage lenders or switch banks, but it’s a hassle. This makes customers somewhat sticky, which is good for business.
As always, there are risks. There is disruption from a growing number of financially innovative online banking providers like Monzo or Starling. In many ways, they are helping drive change at Lloyds.
In addition, if the UK enters the recession that some are predicting, there is a chance individuals become fearful. Suddenly a big mortgage is a big risk, loans are avoided and banks may lose out.
But most companies suffer during recessions. Is a reputable bank with experience of navigating previous downturns not a sensible proposition in tough times?
I am adopting a long time horizon and adding to my position in Lloyds Bank shares.
Rarely do I feel I can buy an industry stalwart with growthy intentions, tailwinds and an eye on cutting costs.