Lloyds (LSE: LLOY) shares would have to be the most popular Footsie financials play. Every time I look at investment platforms’ data, Lloyds is among the most bought stocks.
Personally, I prefer another FTSE 100 financial stock over Lloyds. This stock isn’t as cheap as the Black Horse bank, but it has a much better track record when it comes to generating wealth for investors.
Britons love Lloyds shares
I can understand why UK investors continue to pile into Lloyds shares. For starters, the bank’s well known. And people like to invest in what they know.
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Next, the shares remain well below their highs. And British investors seem to love buying beaten-up stocks (in the hope that they’ll rebound).
On top of this, the bank’s share price is under £1. So investors get a lot of shares for their money.
Meanwhile, the shares always seem to look pretty cheap from a valuation perspective. Today, Lloyds has a forward-looking P/E ratio of just 7.9 (using the 2025 earnings forecast).
Finally, the stock often offers a decent dividend yield. At present, the yield here is about 5.6%.
Put all this together and it’s not hard to see why Lloyds shares are always being snapped up by retail investors.
Poor long-term returns
Sadly though, the stock doesn’t have a very good long-term track record when it comes to generating wealth for investors (despite always looking cheap).
Yes, performance over the last year or so has been decent. But over the last five years, the stock’s only risen about 7%. Over the last 10 years, it’s fallen about 23%.
One reason for this poor performance is that banking’s a highly cyclical industry. So economic weakness can hurt. Another is that there’s no major long-term growth story here. Today, UK banking’s a very mature industry.
My top FTSE 100 financial stock
Given its cyclicality and lack of genuine growth story, I think there are better financial stocks in the Footsie. One I’m very bullish on (and have a large position in) is London Stock Exchange Group (LSE: LSEG) or LSEG for short.
Now, this stock isn’t cheap. Its P/E ratio at present is about 26. And it doesn’t offer a big dividend. Today, the yield’s only about 1.2%.
But this is a high-quality business with a brilliant track record when it comes to generating wealth for investors. Over the last five years, its share price is up 41%. Over the last 10 years, it’s up about 450%.
Looking ahead, I expect the stock to continue delivering. One reason I’m bullish is that LSEG’s now one of the largest players in the financial data space. And this market’s forecast to grow by around 10% a year between now and 2030.
Another is that it serves institutions (investment managers, hedge funds, etc). These kinds of customers are unlikely to suddenly run out of cash and stop paying for its data.
Of course, the high valuation’s a risk here. If future revenue growth’s lower than expected due to weakness in other areas of the business, the shares could fall.
Taking a long-term view however, I reckon this stock will continue to outperform the market. I plan to buy more shares for my portfolio on the dips.
