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Lloyds (LSE: LLOY) shares have been on a tear, rising 58% over the last year and 155% across five, with dividends on top. My own holding has more than doubled with dividends reinvested, and I’ve often kicked myself for not buying more. Now the FTSE 100 is sliding and I’m wondering if the market might be giving me a second chance.
I like snapping up more of my favourite holdings when the stock market gets rough. Picking up shares after a company drops a surprise profit warning can be risky, as those issues can take time to fix, but buying when nothing major has changed and the drop is driven by sentiment rather than substance is a different story. Fears of an artificial intelligence bubble have dragged markets lower, but Lloyds has a couple of issues to deal with too.
FTSE 100 buying opportunity
The motor finance mis-selling scandal has hit the bank harder than its major rivals, as Lloyds is exposed through its Black Horse arm. Lenders could face a combined bill of around £11bn for 14m historic car loan agreements. Lloyds has set out a ‘best estimate’ of roughly £2bn for its own potential cost. Much of that risk now looks priced in and last year’s profit of close to £4.5bn gives it room to manage the blow, but it will continue to nag for some time.
There’s a bigger issue looming in the Budget on 26 November. For months, there’s been talk that the Chancellor may lift the windfall tax on bank profits from 3% to 8%, raising up to £10bn across the sector. That appeared to have been shelved but the government’s sudden turn on income tax could revive the bank windfall raid.
Banking stocks have dropped sharply as a result, and Lloyds is down almost 6% in a week. Buying Lloyds ahead of the Budget feels a bit too binary for my liking. If the surcharge is increased, the shares are likely to drop. If it’s held, they’re likely to rebound. I’m not second guessing this so will step back and let the dust settle. I’m prepared to wait for clarity, even if that means missing out on a rebound should the extra tax never materialise.
Long-term appeal
Taking a longer view, I still see Lloyds as a solid buy-and-hold stock. It’s more expensive than when I bought it in 2023, with the price-to-earnings ratio climbing above 14. The rising share price has pushed the yield down to around 3.6%, but that should lift over time. Lloyds has increased its dividend per share by roughly 15% in each of the last two years and looks set to deliver a similar strong increase this year.
A cheaper entry price is always welcome, yet waiting endlessly for the perfect moment can mean never pressing the button at all. I think Lloyds remains well worth considering today, but I’d prefer to make that call once the Budget’s out of the way.
