Better buy: Lloyds Banking Group plc vs Barclays plc
British banks Lloyds (LSE: LLOY) and Barclays (LSE: BARC) have seen their share costs rise not too long ago on the back of Donald Trump's US election win. But which provides the best investment opportunity?
A look at the two banks' revenue statements reveals that in recent years, Lloyds has had more earnings momentum than rival Barclays. Lloyds has generated earnings development of 29% over the last three monetary years, reporting adjusted earnings per share (EPS) of 6.6p, 8.1p and 8.5p for FY2013-2015. Barclays has seen more modest growth of 9% in this time, reporting earnings of 15.3p, 17.3p and 16.6p.
Metropolis analysts forecast consecutive earnings declines for Lloyds, with FY2016-2017 earnings of 7.2p (-18%) and 6.6p (-9%) estimated. In contrast, earnings at Barclays are predicted to fall and then rise, with 11.4p (-forty six%) and 18.7p (+39%) forecast.
Is there a definitive winner here? It is a robust call. With Lloyds generating 100% of its revenue within the UK compared to 48% for Barclays, a lot is likely to rely on how Brexit affects the UK economy and the implications this has for the financial sector.
However, when it comes to dividends, it is easier to pick a winner. There's no doubt Barclays trumped Lloyds in recent times by way of dividend consistency, paying out 6.5p per share each year for FY2013-2015, compared to lloyds contact number' 0.00p, 0.75p and 2.75p in this time.
Nonetheless in search ofward it's a different story as Barclays introduced earlier this 12 months that it could be slicing its dividend for FY2016. Barclays is now forecast to pay just 3p this 12 months and subsequent 12 months, which on the current share worth, equates to a yield of just 1.4%.
However Lloyds is forecast to pay 3.16p this 12 months and 3.7p subsequent year, yields of 5.4% and 6.three% respectively, and the bank has reiterated its dedication to a progressive and sustainable odd dividend. Lloyds clearly has the momentum here, and whereas the bank's future dividend payouts are actually not assured, I consider that Lloyds has the brighter dividend prospects within the near term.
Lloyds' shares fell heavily after the Brexit outcome and are down 19% 12 months-to-date. With analysts forecasting EPS of 7.2p for FY2016, the bank trades on a forward looking P/E multiple of 8.2.
Barclays shares are down just four% for the year now and on the current share worth of 210p, the bank trades on a forward looking P/E ratio of 18.4. On this metric, Lloyds seems to be the cheaper stock.
Which stock would I purchase?
One thing that appeals to me about Lloyds is the bank's simplified enterprise model. It focuses on domestic retail and small business banking and is 100% UK-focused. Its value-to-income ratio is low at 47.5% and the bank recently reported a strong Widespread Fairness Tier 1 capital (CET1) of 13.four%.
Barclays has a more complex enterprise mannequin, together with an investment banking arm and more various geographic exposure. Many of its 'non-core' property have underperformed of late, and because of this, the bank is seeking to get rid of non-core holdings and simplify its group structure. Barclays lately reported a value-to-earnings ratio of 79% for Q3, and a CET1 ratio of 11.6%.