The Lloyds Banking Group (LSE: LLOY) share price has been a story of disappointment for years. I know, I own some. But is it really the disaster it seems? And what would an investment in Lloyds shares 10 years ago look like today?
More importantly, what lessons does the last decade of Lloyds’ performance hold for us?
Lloyds shares ended June 2012 at 31.1p. Today they’re at 43.5p. So that’s almost a 40% gain over 10 years. A lump sum of £10,000 invested back then would have turned into a few pounds short of £14,000, ignoring charges.
That’s not a great result compared to historic returns from the UK stock market. But it’s hardly a wipeout. And Lloyds actually beat the FTSE 100, which managed a 31% gain over the same period. Investing in an index tracker would have turned the same money into £13,100.
This really only tells half the story, though, as it doesn’t include dividends.
Dividend cash
Over the decade, Lloyds shares bought for 31.1p would have generated a total of 16.5p apiece in dividends. Added to the current 43.5p share price, that’s 60p per share today, for an overall gain of 92%.
An investment of £10,000, 10 years ago would have become £19,200 today, with dividends. And that, I think, is a pretty decent return on a single investment over a decade. Even with inflation, which was very low for most of the period, it still looks good.
In fact, it’s even a bit better than my simple calculation suggests. Using fully adjusted historic share prices from Yahoo suggests an effective total gain of 95.5%.
Lessons
What lessons do I take from this? The period started a few years after the global banking crash. And there’s no hiding the fact that anyone who bought before those events lost a stash of money. So, one key lesson is to diversify.
But since then, bank shares have still had a tough time. We had Brexit, when the UK willingly forfeited its lucrative position at the centre of European banking. We suffered Covid-19 too, which took its toll on the financial sector.
Now we’re facing a dire global economic outlook amid war, soaring inflation, and rising interest rates. Even through that, Lloyds shares turned out to be a decent investment. The lesson? An undervalued stock will still perform if the company behind it is solid.
Look beyond the price
I also think it’s key to look beyond the share price, which seems to be all that most stock market commentators care about. Dividends count, and it’s all about total returns.
In fact, the returns I described above are short-changing Lloyds. That’s because I didn’t include the effect of reinvesting dividends. It might not have made much difference based on the share price, which has not been strong. But every time an investor buys more shares with their dividends, it means they’ll get even more dividend cash the next year, and beyond.
The bottom line for me? I invest in companies that I think are fundamentally sound for the long term, and forget what the stock market says.