Private investors love buying Lloyds Banking Group (LSE: LLOY) shares. And the stock is among the most popular on the London stock market.
There can’t be many people who haven’t heard of the Black Horse Bank. And my guess is the stock’s popularity boils down mainly to two things.
Firstly, the company has a well-known name with a decades-long heritage. And secondly, the valuation looks cheap.
It’s a blue-chip stock, some might argue. And others might say that banks deal in money, so what could possibly go wrong with an investment in the shares?
Volatility assured
Well, plenty can go wrong. And for years now, many investors have been frustrated by their long-term investments in Lloyds shares.
To begin with, the Lloyds share price has earned a reputation for volatility. Over a multi-year view, the stock has been wigglier than a fiddle player’s elbow.
Now that’s all right if an investment rises in value over time. But Lloyds isn’t like that. Instead, it keeps dumping investors back where they started with depressing regularity.
But on top of that, some folks get duped into thinking Lloyds is a steady dividend payer. And part of the reason for that might be the company often sports a chunky yield.
So investors might see pound notes piling up in their share accounts from the dividend. And that can lead to a false sense of security and thoughts that everything will be okay.
However, over the longer haul, it tends to be easy come, easy go, with Lloyds. And sooner or later, one of those regular share-price plunges will likely arrive. And the decline in capital value will probably snatch back all those dividend gains, and then some.
Cyclical opportunities and threats
But on top of that, Lloyds’ dividend security is an illusion. Lloyds paid zero dividends in 2009, 10,11,12,13,14,15 and 2020, according to my data provider.
Meanwhile, the company is one of the UK’s biggest mortgage lenders. And that means the financial outcomes of the business are dependent on the health of the housing market and the UK economy.
Therein is the biggest problem for the business and the firm’s shareholders – Lloyds is just about as cyclical as cyclical stocks can be.
And cyclicality comes with both opportunities and threats.
But some investors have done well with shorter-term investments in the shares aimed at catching an upswing in the business cycle.
However, the stock may not lend itself well to being a very long-term investment in a portfolio. And that’s because profits, dividends and the share price tend to keep returning to where they started.
Nevertheless, I think a general bull market may be coming for stocks, although that outcome isn’t guaranteed. And near 46p, the share price is well within its recent trading range, suggesting consolidation within the business.
Meanwhile, the company has the potential to trade well in the years ahead.
Therefore, I would consider an investment in the shares now if I had spare cash. However, I see the stock and the business as coming with plenty of risks for the private investor like me.
