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

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »