The next few weeks are set to see businesses update investors with their latest results. And with the way 2022 has played out, it’s no surprise some firms have been posting sub-par results. With this in mind, I’m keeping an eye on Lloyds (LSE: LLOY) shares.

It’s been a tough year for the business. The grim economic outlook has seen its share price fall by 14% in 2022. Across the last 12 months, it’s down a slightly more respectable 12%.

However, with the stock currently trading for around 43p, I think now would be a good time to add it to my portfolio. Here’s why.

Lloyds profits slide

It hasn’t been the smoothest ride for long-term Lloyds shareholders. And yesterday this continued as the bank announced that its pre-tax profits for Q3 fell by over 25% to £1.5bn.

The fall was largely pinned to provisions for bad debts and loan losses. And with these jumping to £668m, this indicates that Lloyds is protecting itself against customers who may default on payments in the future.

The release saw the Lloyds share price slip in the early hours of the morning. That said, it recovered to finish yesterday slightly up.

Silver lining

The large drop in profits clearly isn’t what Lloyds shareholders wanted to hear. But it’s not all bad news. One major positive was the 13% rise in net income due to rising interest rates. With rates in the UK currently sat at 2.25%, this has allowed the firm to charge customers more when they borrow from the bank. With this, Lloyds was also able to increase its net interest margins.

As inflation continues to soar and show no signs of slowing down as we head into 2023, there have also been predictions that rates could be hiked to as high as 4% in the months and years ahead. Going forward, this will continue to provide a boost for Lloyds.

What I also like about Lloyds is the passive income stream I can create by buying the stock. With a FTSE 100 average-beating 5% dividend yield, the stock seems like a smart play in current times. Its low price-to-earnings ratio of seven is also an attractive factor.

Housing market slowdown

Lloyds also gave a bleak prediction for the future state of the UK housing market. And as of one the largest mortgage lenders, this may spell trouble for the business. It predicted that UK house prices will fall by 8% next year, followed by a long period of stagnation.

However, this could be offset by its new rental venture, Citra Living, and it has predicted that demand is set to increase across the next five years.

Why I’d buy

There’s no doubt in my mind that Lloyds shares will be a slow burner. However, as a Fool, a long-term approach to investing doesn’t faze me. The short term may be volatile for the business as the UK braces itself for a tough year ahead. However, with the bank set to benefit from rising interest rates, along with its substantial dividend yield, I think the stock is a smart buy. While I don’t have any spare cash right now, if I did, I’d happily buy Lloyds shares at their current price.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If I had as much as £10,000 to pump into a Stocks and Shares ISA right now I’d be looking to load up on top FTSE 100 dividend shares.

After years of trailing major indices such as the S&P 500, London’s blue-chip index is showing it’s made for tough times. US tech stocks may have cashed in on the cheap money era, but FTSE 100 shares now offer bruised investors a welcome safety net.

Investing goes in cycles and the tech splurge lasted beyond its natural term. That came as central bankers piled on the stimulus during the Covid crisis. Now investors are prioritising ‘value’ stocks, dividend-paying companies trading at low valuations. 

My ISA line-up

The FTSE 100 is full of them and I’d start by exploring these 10 companies. All have risks, but offer big opportunities too.

Insurer Aviva has delivered little share price growth in recent years. But it’s a dividend aristocrat paying income of 9.95%. Trading at a dirt-cheap 6.8 times earnings, it’s hard to resist.

Barclays is even cheaper at just 3.7 times earnings, while yielding 4.28%. Sticking with financials, I also like Lloyds Banking Group, cheap at 5.5 times earnings with a 4.82% yield (and future dividend growth).

The financials sector is being shaken by the gilt crisis, while rising interest rates could squeeze both small business and retail customers. But I reckon those risks are reflected in their rock-bottom valuations.

I’d also include transmissions giant National Grid. Frankly, this is a stock I’d buy at any time, as a core portfolio holding. Today it yields 5.77% and looks fair value at 14.4 times earnings. It’s a solid long-term buy and hold for my ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Higher yields

With that as security, I’d take a bigger punt and buy a housebuilder such as Persimmon that yields a ridiculous 19.37%. Although I expect the dividend to be cut sooner rather than later, that won’t be a disaster given today’s starting point. House price crash fears are priced in at a valuation of 4.9 times earnings. At least, I hope they are.

Mining giant Rio Tinto is the second highest yielder on the FTSE 100 offering 14.21% and trading at 4.2 times earnings. Chinese demand for commodities is slowing and the dividend may be reduced at some point. Now still looks like a great entry point for contrarians like me. I’d also consider gold miner Fresnillo. It may benefit when inflation easies, the US dollar softens and the gold price recovers.

Clothing retailer Next will obviously suffer as discretionary consumer spending falls. But it looks better placed than most, and I’d consider it for my ISA too. Then I’d buy Unilever, because I’ve never seen it this cheap at 17.2 times earnings (it’s usually around 24 times) while yielding 4.42%.

Finally, I’d include spirits giant Diageo in my top 10. Yes, it looks expensive trading at 24.1 times earnings while the yield is just 2.08%.But it’s a solid, recession-proof business and they come at a premium in these troubled times.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, Diageo, Lloyds Banking Group and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds (LSE: LLOY) shares have plummeted this week. With the stock down around 17% in 2022, it has fallen by 9% in the last five days alone.

The business has been a victim of the large drop we’ve seen in global markets in the last few days as a piling up of pressures continues to worsen the economic outlook.

However, I’d rush to add the FTSE 100 bank, currently trading for 41p, to my portfolio. Here’s why.

The story so far

Clearly, it’s been a tough year for Lloyds. Inflation has been on the rise. And as such, investors have lost confidence in the market. Rates have been above 10% in the UK and the US at times this year. And as a result, the FTSE 100 is down by over 8% in 2022.

The last five years have also followed a similar trajectory for Lloyds stock. In September 2017, a share in the bank would’ve cost around 68p. Today, it’s 40% lower.

Not all bad news

Despite its poor performance, I think now is a great time to load up on some shares.

The first reason for this is rising interest rates. To fight back against spiking inflation, the Bank of England has been hiking rates. Last week saw the central bank set the rate to 2.25%, a 50 basis points rise. There’s also large speculation that it could reach nearly 6% come next spring.

For Lloyds, this is a positive. This is because higher rates will allow the firm to charge customers more when they borrow from the bank. In turn, the firm will be able to increase net interest margins.

On top of this, I also like the stock because of its low valuation. It currently trades on a price-to-earnings ratio of 6.8, sitting well below the ‘benchmark’ of 10 and the average of its FTSE 100 peers.

Racing inflation also means I’m looking to create streams of passive income. With its 5.1% dividend yield, Lloyds offers this.

Lloyds concerns

With this said, there are a few issues I have with the stock.

Firstly, should interest rates reach as high as predicted, customers are more likely to default on payments.

On top of this, with its sole focus on the domestic market, Lloyds is more prone to the impacts we’re set to see as the UK economy weakens. The impact of the next few months could set Lloyds back in the near term.

As one of the UK’s largest mortgage lenders, the weakening housing market may also spell trouble for the business.

However, its new rental venture, Citra Living, will help it to offset risk through this diversification.

Why I’d buy

So, while the short term may be rocky for Lloyds, I see long-term value in the bank’s shares. The rise we’re set to see in interest rates will benefit it. And with its high dividend yield and low valuation, I think the stock is a smart buy below 45p. I’d happily add Lloyds shares to my portfolio today.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Global stock markets are in turmoil and Lloyds (LSE: LLOY) shares are feeling the heat, like many others. I reckon this makes now a great time for me to buy them.

My favourite time to buy top FTSE 100 stocks is when they have fallen in value through no fault of their own. That allows me to buy a good company at an unfairly low price, rather than a bad company at a deservedly low price.

I’d buy Lloyds shares in today’s turmoil

I don’t like buying stocks after profit warnings. That suggests the underlying business is in a poor state and the recovery process could be lengthy. I don’t like buying them in the middle of takeover speculation, either. All too often that proves to be hot air, inflating a bubble that deflates just as quickly.

Lloyds shares have fallen 11.65% in the past week, in a period when the company has not delivered any significant news. In fact, its last meaningful announcement was two months ago on 27 July, when the bank published its half-year results.

They showed a healthy 65% increase in net income to £7.2bn. Pre-tax profits fell 6% to £3.6bn, but that was because the previous year’s earnings were boosted by the release of cash set aside to cover bad Covid debts that never materialised.

The outlook was promising for Lloyds Banking Group, and the company can hardly be blamed for the current sell-off. That is down to last week’s controversial mini-budget by Chancellor Kwasi Kwarteng. 

It sparked a meltdown in the pound and global investor confidence in the UK. The FTSE 100 has fallen by 3.82% in the last five days, while financial services sector rival Barclays is down 8.82%.

I have been looking for a good time to buy Lloyds shares and now I think I’ve found it. They look cheap, trading at 5.77 times earnings. The price-to-book value is just 0.6, where a figure of 1 is considered fair value. 

Lloyds stocks offers an attractive passive income stream, too. The current yield is 4.6%. It is forecast to rise to 5.3%, as management continues to restore dividends. That payout is expected to be covered three times by earnings, and looks solid.

It’s another FTSE 100 bargain

Of course, there are huge dangers. The UK is plagued by what the Bank of England calls “dysfunctional markets”. Interest rates could fly as high as 6% in the spring, leading to a sharp rise in mortgage arrears and bad debts. House prices could fall, triggering a vicious circle.

Lloyds is fully exposed to the UK’s ailing economy, because it is now a purely domestic bank, focusing on consumers and small businesses. Yet rising interest rates could partly work in its favour. They will allow Lloyds to increase net interest margins, the difference between what it pays savers and charges borrowers.

I plan to buy Lloyds shares over the next few days despite the risk that they may have further to fall. The next few months will be bumpy, but I’m not investing for months. I aim to hold this stock for years, or ideally, decades. Lloyds looks like a solid company going cheap. I’ve waited enough. This is my moment to buy it.

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Lloyds (LSE: LLOY) shares remain one of the most popular investments in the UK. It seems investors like the fact that shares in the bank can be picked up for under £1.

But have Lloyds shares actually been a good investment recently? To answer that question, I’m going to take a look at how much I’d have today if I had invested £5,000 in Lloyds shares five years ago. Let’s crunch the numbers.

Lloyds shares have underperformed

Five years ago, on 14 September 2017, Lloyds shares closed at 66.4p. Today, however, they’re well below that level. Indeed, yesterday, the stock closed at 46.5p.

That represents a decline of approximately 30% over the five-year period, meaning that if I had invested £5,000 in the stock back then (assuming I bought at the closing price of 66.4p), my money would now be worth about £3,500 (ignoring trading commissions). Ouch!

Don’t forget dividends

Of course, we also need to factor dividends into the equation. These can make a big difference to overall returns.

Here’s a look at the dividends I would have been entitled to if I had bought Lloyds shares five years ago.

In total, I would have been entitled to income of 9.75p. On £5,000 worth of shares (approximately 7,530 shares at 66.4p per share), the dividends would amount to around £734 in total (assuming I didn’t reinvest them).

So, adding that to the capital value of my Lloyds shares, I would now have approximately £4,234. Overall, that equates to a loss of around 15%. Needless to say, the return from the banking stock over the last five years has been quite disappointing.

The lesson from Lloyds shares

Looking at this underwhelming return, there’s an important lesson here – it’s crucial to own a diversified share portfolio.

It’s often said that shares tend to produce returns of 7-10% per year over the long term. But these returns are for the stock market as a whole. To achieve those kinds of returns, one needs to own a diversified portfolio of stocks from a range of different industries. Owning just a handful of stocks (like many private investors do) can produce vastly different returns. And ultimately have a big impact on one’s ability to achieve their financial goals.

This is why I own a well diversified investment portfolio myself. I own a wide selection of stocks from a range of different sectors including technology, healthcare, financials, and consumer staples. In total, I own nearly 50 different stocks.

This doesn’t guarantee I’ll generate strong returns from shares over the long term. But it does improve my chances of doing so. Because if a handful of stocks produce disappointing returns – like Lloyds has recently – it’s not likely to be a disaster. The returns from better performing stocks are likely to offset the poor returns from the underperformers.

Ultimately, diversification is the key to generating solid returns from the stock market.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds (LSE: LLOY) shares are on a surge. Despite being down 9% year to date, this week the stock is up around 6%. The last 12 months have seen it rise by 7%.

In times gone by, a share in the FTSE 100 bank would set you back as much as 65p. Today a share costs just over 45p.

For this price, I’d rush to add Lloyds shares to my portfolio. Here’s why.

Lloyds share price history

Before we start, let’s take a look at why the Lloyds share price has fallen in the last few years.

The stock entered 2020 trading at 63p. However, with the pandemic causing markets to fall across the globe, the year saw Lloyds stock drop 42%, and at times to as low as 25p.

Since then, it has made small recoveries but has failed to sit above the 50p mark for a noticeable period.

With racing inflation, this year has told a similar tale. Consumers are tightening their belts and markets are losing value as rates continue to rise. Recently, it was predicted that inflation could spike to as high as 22%.

Why I’d buy

So, with such a bleak outlook, why would I buy Lloyds shares?

Well, the first reason is rising interest rates. To counteract rising inflation, the Bank of England has been hiking rates. Its most recent hike was to 1.75%. However, there have been predictions this could go as high as 3%-4%.

For Lloyds, this is good news. And this is because the firm can charge customers more when they borrow from it. Its net income rose 12% in the first half of the year, with interest rates likely playing a part in this. It also saw its net interest margin increase as the firm raised its outlook for the year.

With this said, it’s not just the potential of higher interest rates that attracts me. The stock currently trades on a price-to-earnings ratio of 7.5. This is below the ‘benchmark’ of 10. And to me this signifies that Lloyds is undervalued.

A smart play with rising inflation would also be to create a stream of passive income. And with a dividend yield of 4.7%, Lloyds offers this.

Lloyds concerns

Even with this, there are a couple of factors that are of concern.

While rising interest rates are positive, they could also see customers default on their payments. For Lloyds, this would clearly be bad news.

On top of this, as one of the UK’s largest mortgage lenders, Lloyds could also be affected by the UK housing market showing signs of a slowdown. In its latest results, homebuilder Barratt Developments said that the number of homes being reserved was now below pre-pandemic levels. As a result, it expects house price growth to slow.

However, I’d still buy Lloyds shares today. The inevitable rise in interest rates will benefit the bank. And with its low valuation and dividends, the stock would be a strong addition to my portfolio. While a housing market slowdown may pose a threat, I think the moves Lloyds is making in the rental market will help offset this. For 45p, I’d rush to buy.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With inflation already above 10% in the UK. And with predictions that this figure could more than double in the months ahead, creating a passive income stream that puts my money to work doesn’t seem like too bad an idea.

Passive income exists in multiple forms. And despite what some people think, I don’t need a huge amount of capital upfront to create some sizeable returns. Here’s the plan I’m using to build a steady stream to last me for the long term.

Start early

The most important factor for me is the idea of starting early. As a Fool, I believe long-term investing is the most efficient way to put my money to work. And as a 20-something, I have time on my side. The earlier I start, the better chance I’ll have to build a sizeable pot of cash. After all, that’s the aim.

Top up my funds

Despite time being on my side, unfortunately, an abundance of money isn’t. But like I said, I don’t need bundles of cash to put my plan into action today.

What I need to do is decide how much I am willing to give up a month. And with this cash, I want to invest it continuously. By doing this, I’ll benefit from ‘pound cost averaging’, which essentially balances out the price that I buy in at.

Reinvest my dividends

Another step I’d take to maximise my returns is by reinvesting the dividend payouts I receive. From this, I can benefit from compounding. For example, if I own a stock that pays me a 6% dividend, and generates 7% growth per year, that gives me a 13% annual return. Over the course of a few years, this may not seem great. However, an initial £500 investment compounded over 30 years (the length of time I aim to invest for) would return £24,000.

What’s more, should I incorporate the monthly payments (say £30) I’d have been adding, after 30 years this amount would be around £155,000!

Pick high-quality companies

The final factor I’d consider is the quality of the company I chose to invest in.

I want to avoid assets like growth stocks as they often don’t pay dividends to shareholders. Instead, I want to pick dividend stalwarts that have a strong track record of paying out to investors in times gone by. These businesses would hopefully allow me to see growth. And, more importantly, they would keep my passive income stream running.

Some examples of these types of companies include Lloyds and BT.

There’s always a risk

Despite the above, I must always be wary that no dividend is guaranteed. These payments can be cut off by a business at any time if they choose to. I must also be conscious of the fact I may see lower returns than I expected. Both of these could put my plan in jeopardy.

Luckily, investing in multiple companies will help mitigate the risk of this happening. And by following these steps, I’m confident I could build a lifelong passive income stream.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s been a tough year or so for investors. Red hot inflation has caused global turmoil. And with a Covid-19 hangover and the tragic war in Ukraine also weighing down on sentiment, it’s no surprise people are fearing a stock market crash.

Despite these fears, I’m staying calm. With the threat of markets tumbling in the months ahead, here’s what I’d do should the market plunge.

The story so far

Before we delve into what I’m doing, let’s start by taking a look at what’s been going on recently.

As mentioned, the reason markets have suffered this year is a result of the macro economy. Inflation has hit 40-year highs in both the UK and the US, jumping above single figures in the UK for July. And while the FTSE 100 is down nearly 3% year to date, the S&P 500 has been as low as $3,636, signifying a 23% year-to-date loss.

Despite these losses, markets made a small rebound from July following the news that US month-on-month inflation fell between June and July. Clearly, investors were beginning to regain confidence.

However, with dire predictions for inflation rates being released by the likes of Goldman Sachs and Citi, it seems the months ahead could be rocky. While Citi warned that UK inflation could reach 18%, stating that the UK energy price cap could reach nearly £6,000 by April 2023, Goldman also recently predicted inflation could peak to as high as 22% should gas prices continue to soar. There’s no doubt this would see a crippling downturn in the stock market.

Remembering my goal

So, with the threat of a market crash on the horizon, what would I do?

First of all, I’d remember how I invest. And that’s for the long term. Within the stock market there are many different types of investors, be it day traders or hedge funds. But as a Fool, I purchase stocks with the aim of achieving some healthy returns in the long run.

What this essentially means is that the turbulence we’re experiencing in the market right now shouldn’t scare me into selling my positions. Volatility is inevitable. And therefore, I need to remember that if I’m patient, my long-term plan of building wealth should bear fruit.

Grasping opportunities

With this said, this doesn’t mean that I should steer clear of the markets. And in fact, what I’d do is the opposite!

A stock market crash presents a great opportunity for me to grab some bargain companies with strong fundamentals. And should stocks fall further, I have a list of companies I’d look to add to my portfolio. This includes the likes of companies such as BT and Lloyds, who have already seen their share prices suffer this year.

Whether a stock market crash occurs in the near future is unknown. And there’s no telling to what extent inflation can continue to rise. However, with my long-term outlook and a keen eye for undervalued investment opportunities, I’m not panicking any time soon.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds (LSE: LLOY) shares have enjoyed a solid 12 months. They haven’t actually risen, but they haven’t fallen, either. Given today’s huge global uncertainty and the US bear market, I consider that a win.

Investors have largely resisted the temptation to drop the UK-focused high street bank from their portfolios. I think now is a good time to buy them. Lloyds shares are down 31% on five years ago, which I reckon leaves them trading at a tempting valuation.

Incredibly, investors can buy Lloyds Banking Group stock for just 5.6 times earnings. That is a fraction of the average valuation across the FTSE 100 of 14.08 times earnings. The bank’s price-to-book value is just 0.6, well below the figure of 1 that is considered fair pricing.

The stock looks good value although I’m not expecting it to take off like an Olympic sprinter. Lloyds has suffered too many false starts since the financial crisis, and still faces plenty of hurdles before it returns to being the reliable income machine of yore.

The obvious hurdle is that the UK is in the middle of a cost-of-living crisis, and this could lead to a spike in small business and private customer defaults. Lloyds is the UK’s largest mortgage lender and happily, the property market is solid for now. It remains to be seen how long that can last, given the storms heading our way.

Banking stocks normally struggle in a recession, but there is one reason why it could be different this time. Interest rates look set to rise sharply, as the Bank of England struggles to combat raging inflation. That will allow Lloyds to widen its net interest margins, the difference between what it charges borrowers and pays savers.

I’d buy Lloyds for the yield, with growth a bonus

The BoE has hiked base rates five times from 0.1% to 1.75% since December, but Lloyds has not increased its savings rates anywhere near as much. For example, its Easy Saver account pays just 0.2%. That is a rotten deal for savers, of course, but good for the bottom line.

Bank of America recently also described Lloyds’ credit quality as “robust” while its “stress scenario” revealed “resilience”. That offers me further comfort.

Although Lloyds shares may not grow much for some time, I would not expect them to fall much further, either. A good deal of today’s bad news has been priced into that low valuation. In a way, it’s irrelevant. I would aim to buy and hold Lloyds shares (and any other stock) for a minimum of 10 years, which should give them plenty of time to recover.

The real attraction is the dividend yield, which is currently 4.6%. That is comfortably above the FTSE 100 average of 3.53%. Next year, Lloyds shares are forecast to yield an even more generous 5.6%. Yet that income will still be covered three times by earnings. It adds up to a strong argument for me buying them today.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds shares (LSE: LLOY) shares have failed to excite over the last five years. During this time, the stock is down 32%.

Across the last 12 months, it’s down 1%, meaning today I can pick up the FTSE 100 bank for just 43p.

Why is Lloyds so cheap? And should I be in a rush to snap up some shares at this price?

Rising interest rates

Let’s start with the most obvious factor surrounding Lloyds right now. Interest rates.

This year has seen inflation run rife. And therefore, to combat this the Bank of England has been hiking rates. In its latest update, it pushed up rates by 0.5% to 1.75%, a figure not seen for years.

With some predicting inflation could reach 18% come next year, it seems likely that the BoE isn’t finished just yet. For Lloyds, this is a good thing.

This is because it allows the bank to charge customers more when they borrow from it. And in turn, this boosts Lloyds’ revenue. The hikes already seen in 2022 could have contributed to its net income rising 12% in the first half. The upgraded outlook for its net interest margin could also be attributed to rising rates.

However, it’s not just the potential for higher interest rates that draw me to the stock. With inflation over 10%, cash in a current account is losing its value. And with that, its 4.9% dividend yield is an attractive proposition. This stream of passive income is a smart way for me to put my money to work. Given the current economic climate, this seems ideal.

Adding to this, its 7.1 price-to-earnings ratio is a further benefit. Compared to its FTSE 100 peers, this looks cheap.

With that said, as one of the UK’s largest mortgage lenders, the slowdown in the housing market could be of concern. However, its new rental venture, Citra Living, shows the business is diversifying. Through this, it plans to buy 50,000 homes by the end of the decade. With the firm predicting demand to increase across the next five years, I think this could be a strong move by Lloyds.

Not all good news

While I see plenty of benefits, there are a few issues that worry me.

To start, rising interest rates are good. However, they may also mean people default on their payments. It could also see new business dropping off.

On top of this, the UK is set to fall into a recession. Lloyds has struggled in previous crises, so as a potential investor this is alarming.

Should I buy?

At its cheap price of 43p, is it time to add Lloyds to my portfolio?

I’d say yes. The months ahead may be rocky, but at this price, I think the shares are too good to pass on. The bank is set to benefit from rising rates in the future. And with its low valuation, high dividend yield, and rental venture, I’d happily buy the stock today.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.