The Lloyds (LSE: LLOY) share price has surged since I bought the FTSE 100 bank in 2023. It’s up 42% over the last year. My total return is nudging 150%, including reinvested dividends. So I’m happy.
There’s no way I’m selling my shares. I hope to be holding them in 20 years’ time and using the dividends to fund my retirement. But after such a strong run, is the excitement set to cool?
Several other writers on The Motley Fool have the same concern, and I’m in two minds myself. So I decided to call in artificial intelligence to see whether it could help me make up my mind.
I’d never use ChatGPT to pick stocks. I wouldn’t trust it to source an accurate price-to-earnings ratio, frankly. But I thought it might reflect prevailing investor attitudes and briefed it on my concerns.
I told the chatbot that after such a strong run, Lloyds isn’t as cheap as it was. I bought at a big discount, with a P/E of around six and a price-to-book ratio of 0.4. The yield was roughly 5.5%.
Today, the price-to-earnings ratio has climbed to 15, and the P/B is around 1.2. The shares aren’t the bargain they were and the income has slipped too. The trailing dividend yield is now 3.6%. It’s not the bargain recovery play it was, in my view. So what did ChatGPT think?
Of course, it doesn’t think. It trawls and regurgitates. And in this case, spouted horrible investor jargon like “valuation expansion has done much of the heavy lifting” and that future returns are “more likely to track earnings growth than sentiment shifts”. Er, thanks.
It then threw my own brief back at me (another of its habits) warning: “The easy gains from re-rating may already be in the bag.”
On the positive side, AI pointed to recent upgraded guidance. Lloyds now expects return on tangible equity of more than 16% in 2026, up from more than 15%. “Sustained double-digit returns on equity provide a solid underpinning for dividends,” it concluded.
I’ll stop there. The rest descended even deeper into generalities, with warnings that impairment charges could rise if the economy deteriorates. ChatGPT also regurgitated more of my original brief by pointing out that falling interest rates could compress net interest margins and slow profit momentum.
So what did I conclude? ChatGPT didn’t tell me to sell, which I wouldn’t have done anyway. It didn’t call Lloyds a screaming buy either. Basically, it sat on the fence. So here’s my view.
I’m delighted with my gains and plan to hold for the long haul. But I’m also realistic. The early recovery phase is probably over, and future returns will come from slow and steady compounding. But that’s okay. It’s what I bought it for in the first place. I’ll treat the recent surge as a short-term bonus, one of those cyclical flips investors get from time to time. Now I’ll just sit tight, reinvest my dividends and wait for the next one. I think Lloyds is still worth considering today, but on those terms.