Investors wanting to take a stake in Lloyds Banking Group (LSE: LLOY) on the cheap have had no shortage of opportunities. Lloyds shares have been down in penny-share territory for years. Even before the pandemic, we were looking at only 60p, or less.
Today, at around the 45p mark, is Lloyds just too cheap to ignore? Well, if there’s anything better than a short-term buying opportunity, it’s got to be a long-term buying opportunity, right?
If I didn’t already have some Lloyds shares, would I buy any now? Or, more importantly, will I buy more?
When thinking of buying Lloyds shares, like any other really, I think investors need to be able to ignore one key distraction and focus on what matters. That’s ignore short-term conditions and focus on the long term.
10 years
As billionaire investor Warren Buffett famously recommended: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
That’s fine for me, as I’ve always invested for the long term. It means I’m holding my existing Lloyds shares with a view to keeping them for at least another decade. And if I buy any more, I’ll want to keep them for at least that long too.
Oh, and though my shares have fallen in value while I’ve had them, my annual dividends have been coming in. And that’s what I buy shares for.
After being forced into a dividend cut during the pandemic, Lloyds returned with a 4.2% yield in 2021. For 2022, analysts are forecasting 5.5%. What’s more, over the following two years, they’ve marked in rises to 6.5%.
Recession?
Anything can happen in the next two years. And any period of recession could keep bank shares under pressure. By the end of 2022, for example, I think there’s probably as much chance of Lloyds shares falling further as rising.
My long-term optimism is based on one main thought, really. It’s that I fully expect the UK economy to recover and get back to growth. It’s happened every time we’ve had a recession so far, and we’ve been through some corkers.
And that surely means banks will do well in the long term. The banking business really is the most important piece of infrastructure that every part of the economy needs.
Can banks lose?
For me, the financial sector is the ultimate ‘picks and shovels’ investment. Those are named after the gold rush. No matter who struck it rich and who returned empty handed, those providing the equipment and supplies made their money.
I just can’t imagine a strong long-term economic future without banks generating healthy profits and paying dividends to shareholders. That’s not to say banks can’t fail. We saw some spectacular downfalls during the financial crisis.
There’s plenty of short-term risk, for sure. Especially as Lloyds is big on mortgages, and the housing market might be slowing. But I’m looking well past that.
Lloyds remains firmly on my ‘buy more’ list, especially at today’s penny share prices.