Lloyds Bank doesn’t seem to be able to get much love from investors. Shares in the group have drifted down from about 85p five years ago to just 58p at the time of writing.
As the stock has been falling, Lloyds’ profits have been rising. So has the bank’s dividend. So what’s the problem? One risk is that the bank’s profits depend heavily on the UK consumer economy, thanks to its £264bn mortgage book and £18bn credit card business. Alongside this, it has over £15bn in motor finance and has lent £32bn to small- and medium-sized businesses.
If the UK economy heads into recession, some of these loans may fall into arrears, causing profits to fall. On the other hand, the economy may not be about to crash. And even if it does, Lloyds’ balance sheet is much stronger than it used to be, thanks to post-2009 regulatory changes.
Taking all this into account, I think Lloyds 6% dividend yield looks a decent buy-and-hold choice for income investors.