A beaten-down Lloyds (LSE: LLOY) share price has become somewhat of a recurring theme. And it feels like an age since the stock strung together a period of strong performance.
Lloyds shares make up a large chunk of my portfolio. However, I wouldn’t question market spectators who were sceptical about why I owned them. To be frank, its performance in the last five years has been dire.
But, now sitting at around 44p, do Lloyds shares represent one of the best bargains out there? Or should I avoid it at all costs?
Well, let’s commence by looking at Lloyds’ performance as of late.
The business has struggled in the past few years as the pandemic and inflationary pressures have dragged down investor confidence. I would have paid 59p for a Lloyds share five years ago. Today, it costs 25% less than that.
Despite this poor performance, the business has recently provided investors with some positive updates. In its half-year results, pre-tax profits and net income both saw significant jumps. What’s more, with interest rates hiked to offset racing inflation, the firm has also benefited from a large spike in its underlying net interest income.
This is because raised rates allow Lloyds to charge customers more when borrowing. And while increased impairment charges are a risk, with a large proportion of Lloyds revenues stemming from interest-related activities, this has provided the business with a boost.
In addition, one of the biggest factors for me owning Lloyds shares is the passive income opportunity it provides. As I write, the stock has a dividend yield of 5.7%. And while this isn’t inflation-beating, it’s not far off. It certainly trumps me leaving my cash in the bank.
Other than its dividend alone, I’m also happy to see the steps the firm is taking to return greater value to shareholders in the future. Most recently, this was seen via plans for a £2bn share buyback scheme.
Of course, while its yield is attractive, it’s worth noting that dividends can be cut at any time. However, I can’t see this being an issue, with Lloyds’ payout covered around three times by earnings.
A bright future
CEO Charlie Nunn has also started to place a focus on the business plans for the years ahead. For example, he recently announced that Lloyds is investing £3bn over the next three years to diversify its revenue streams. As a Fool, and therefore a long-term investor, this is encouraging.
Too cheap to ignore?
So, with all that in mind, are Lloyds shares really a bargain?
Well, I’m bullish on the long-term prospects for Lloyds. And as such, I think now would be a smart time to snap up some shares.
The passive income opportunity is a major draw for me. And with a price-to-earnings ratio of around six, its low valuation is a further attraction.
It may struggle over the next few months as inflation persists. But I’m more concerned about where the business will be a few years from now.
If I had the cash, I’d happily snap up some more shares today.
The post Is the Lloyds share price a bargain or a value trap? appeared first on The Motley Fool UK.
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Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.