I asked ChatGPT how much £10,000 invested in Lloyds shares 5 years ago is worth today? But it wasn’t very helpful…
Lloyds Banking Group (LSE:LLOY) shares have been, according to ChatGPT, a âstrong performerâ over the past five years. This is undoubtedly true. But when I asked the software how much a £10,000 investment made in December 2020 would be worth five years later, it gave me a figure that it said âmay or may notâ include the impact of reinvesting the dividends received.
To be honest, thatâs not a very useful answer because whether someone decides to bank the dividends — or use them to buy more shares — can have a dramatic impact on the value of a portfolio. Let me illustrate.
Scenario 1 – spend the money
Since December 2020, Lloyds has paid dividends of 12.12p a share. This means a £10,000 investment made five years ago, would have earned £3,472 in payouts. At the same time, the initial lump sum would now be worth £27,736.
Overall, thatâs a gain of £21,208, or 212%.
Scenario 2 – reinvest the dividends
Alternatively, if the payouts had been used to buy more shares at the end of the week in which the dividends were paid, the initial £10,000 would have grown to £35,733.
Thatâs an increase of £25,733, or 257%.
These two examples demonstrate the power of compounding. It also illustrates, in my opinion, the weakness of artificial intelligence software. I reckon thereâs no substitute â at least for the time being â for research undertaken by humans.
So does this human reckon thereâs a compelling case to be made for buying Lloyds shares?
Not cheap
To be honest, I think the bankâs stock is looking expensive, especially for a business thatâs reliant on a shaky UK economy for nearly all of its income.
The last time they were changing hands for more than £1 (adjusted to reflect subsequent rights issues and share consolidations) was in 2008, just before the global financial crisis. Today, the share price isn’t far off this level.
Back then, Lloyds TSB (as it was known) had just published its 2007 annual report. This disclosed a post-tax profit of £3.29bn. At the time, its shares traded on 8.1 times earnings. By comparison in 2024, it reported a profit after tax of £4.48bn. This means the stock has a price-to-earnings ratio of 15.1 times historic earnings.
According to McKinsey & Companyâs most recent global banking survey, the average multiple for the industry is 8.4.
Looking ahead
But analysts are forecasting some very impressive growth over the next three financial years. By 2027, they’re predicting a profit of £6.82bn and earnings per share of 11.3p. If realised, these would represent 52% and 179% improvements respectively on 2024âs numbers. I reckon this would be a brilliant performance.
However, I canât see this happening. Remember, earnings in 2024 were âonlyâ 36% higher than they were 17 years earlier.
Much of the improvement appears to be predicated on a net interest margin improvement from 2.95% in 2024 to 3.39% by 2027. This is against a backdrop of an anticipated cut in borrowing costs. I know Lloyds makes more on its loans than it pays on deposits, but I donât see it being able to grow its loan book sufficiently to offset the double whammy of increased competition and falling interest rates.
On this basis, I think there are better opportunities to explore elsewhere.
The post I asked ChatGPT how much £10,000 invested in Lloyds shares 5 years ago is worth today? But it wasn’t very helpful… appeared first on The Motley Fool UK.
Should you invest £1,000 in Lloyds Banking Group plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group plc made the list?
More reading
- As the Lloyds share price heads towards a pound, is it still a bargain?
- £10k invested in sizzling Barclays, Lloyds and NatWest shares 1 year ago is now worthâ¦
- See what £10,000 invested in the FTSE 100 at the start of 2025 is worth todayâ¦
- Move over Lloyds, are Barclays shares the ones to go for in 2026?
- Will the Lloyds share price breach £1 in 2026?
James Beard has no position in any of the shares mentioned. 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.
