Forget the Metro Bank share price! Here’s why I’m banking on Lloyds instead

Metro Bank has plummeted more than 40%, here’s why I would avoid it and look elsewhere.

| 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.

Investors might be tempted by the Metro Bank (LSE: MTRO) share price. Having plummeted over 40%, some may see it as a bargain. After pulling out of a £200m bond sale and announcing a serious accounting issue earlier this year, Metro Bank has been consistently falling.

In total, the stock has fallen nearly 90% since January and there is a lot to be concerned about.

Avoid like the plague

Metro Bank appears to be far too risky for many as the attempt to raise money via a bond issue offering a 7.5% yield fell flat. Investors still avoided the company, demonstrating a severe lack of trust in the company’s future.

With one disaster after another, I would avoid investing a penny in Metro Bank. I have a feeling that the company could very soon be heading for the exit with some very worrying figures. It only joined the stock market in 2016 and was valued a healthy £1.6bn. In just three years the company is now valued at £500m. These numbers terrify me.

I think that Metro Bank will eat up your investment and offer nothing in return. I wouldn’t be tempted by the cheap price as I don’t think that it has anything to offer.

A much brighter future

I’m turning my attention to Lloyds (LSE: LLOY) instead, despite its share price decline. I believe that the majority of the share price decline is largely out of the bank’s control. With Brexit and fears surrounding the UK economy taking hold, I think that Lloyds shares have been unfairly underpriced.

The possibility of a no-deal Brexit poses a huge threat to all banks, not just Lloyds. So, why would I consider investing in Lloyds? Because there is a whole host of benefits that its shares can bring investors.

The Lloyds dividend yield currently stands at a very tempting 6%, which is considerably higher than the FTSE 100 average of 4.5%. This offers instant rewards for investors and is currently an exceptionally safe dividend. Payout cover is expected to increase to 2.2x next year, which means that profits would have to drop by 50% before the company would have to reduce the dividend.

Lloyds is growing and improving as a business. It’s rapidly going digital, which is helping it to cut costs, while expanding its mortgage and credit card business. On top of this, I think that the company is very well placed to deal with Brexit in comparison to smaller banks.

Lloyds is due to report third-quarter earnings on the same day as Brexit, October 31! Hopefully, this isn’t a bad omen and the company will have something positive to report. While bad news could lead to a short-term fall, I believe that in the long term, this stock has a lot to offer investors.

With a P/E of 9, I don’t think you can go far wrong by investing in Lloyds and reaping the rewards of huge dividends.

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.

fional has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »