Lloyds Banking Group plc, Barclays plc or HSBC Holdings plc: Which FTSE 100 Giant Should You Buy?

Bilaal Mohamed compares the investment appeal of Lloyds Banking Group plc (LON: LLOY), Barclays plc (LON: BARC) & HSBC Holdings plc (LON: HSBA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’ll be taking a closer look at three British banking giants – Lloyds (LSE: LLOY), Barclays (LSE: BARC) and HSBC (LSE: HSBA). Should you be risking your savings on any of these high street banks?

Dividends rising

Lloyds shares have declined 17% over the last 12 months, but have still outperformed fellow high street banks Barclays, HSBC and RBS. So why has Lloyds fared better than its rivals?

I believe the answer lies in the dividends. Healthy dividends can help support a share price, as the share price falls more investors are attracted to the increasing yields, it’s as simple as that. Lloyds dividends have been rising since 2014, and this is set to continue, with 4.32p per share expected for this year, increasing to 5.18p for 2017, giving prospective yields of 6.4% and 7.6%, respectively.

Great news for income seekers, but are the shares cheap or expensive? Lloyds trades on 8.5 times forecast earnings for 2016, falling fractionally to 8.4 in 2017. In my view the shares aren’t as cheap as they look, given the uncertainty over future profits, but the dividends are attractive and could help to provide some resistance to further share price declines, as long as earnings remain stable.

Contrarian opportunity?

Barclays got a boost from Société Générale last Wednesday when the French investment bank it reiterated its buy rating on the UK bank, with a 245p price target. This represents a huge premium on the current market price of around 150p. There was a further boost on Thursday when Shore Capital also confirmed its buy recommendation on the stock. So is this bullishness justified, or just too optimistic?

Well, the near-term outlook doesn’t look too bad, with consensus forecasts suggesting that after a flat year in 2016, earnings should jump by a healthy 36% in 2017. Dividend forecasts aren’t so healthy however, with 3.75p per share expected for this year, rising to 4.2p for 2017, offering prospective yields of just 2.5% and 2.8%.

Barclays trades on a forward price-to-earnings ratio of 9 for 2016, falling to a very cheap-looking 6.6 for 2017. The shares have fallen 41% over the last 12 months and this could be a good buying opportunity for contrarians.

Fat and juicy income

On Thursday it was revealed that HSBC was planning to close approximately 200 branches in the UK, equating to around a fifth of its entire high street presence. In line with similar statements from RBS and Barclays, the bank pointed to the increase in online and mobile banking as the main reason for reducing the branch network.

No doubt this move will reduce costs, but how does the future look for our largest bank? Well, our friends in the City expect earnings to fall by a modest 4% this year, with a 9% rebound pencilled-in for 2017. But the real story is the dividends. The payout for 2016 is forecast at 35.44p per share, rising slightly to 35.96p for 2017, giving yields of 8.1% and 8.2%, respectively. Oh yes, that’s what I call a meaty dividend.

The valuation doesn’t look too bad either, with the shares trading on 9.4 times forecast earnings for this year, falling to 8.7 times next year. After hefty falls I think the shares have been oversold and have brought the juicy dividend income into the irresistible category.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »