Who Should You Buy: Lloyds Banking Group plc Or Barclays PLC?

The investment cases for Lloyds Banking Group plc (LON: LLOY) and Barclays PLC (LON: BARC).

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We’re at the end of results season for the main banks after RBS posted its final 2013 figures yesterday. While the market digests RBS’s numbers — shares were down 8% during early trading — let’s look at Lloyds (LSE: LLOY) (NYSE: LYG.US) and Barclays (LSE: BARC) (NYSE: BCS.US), who each posted results earlier this month, now that the dust has settled.

In the interest of having a diversified portfolio it might be worth your while looking at the banking sector. You might even already own shares in either company, or alternatively are wondering which one you should invest in?

Hopefully, after reading this article, you’ll have a clearer picture.

Lloyds

LLOYShares in Lloyds have risen 60% in the last 12 months pushed up, in large part, on hopes that the bank will soon start paying a dividend. After doubling underlying profit in 2013, on top of improvements to capital strength, Lloyds announced that it intends to apply to the regulator later this year to restart income payments.

City experts are forecasting a 2.5p payout in 2014, which translates to a prospective yield of 3%. That’s not bad for an initial amount — actually, it’s only just below the FTSE 100 average.

But perhaps average isn’t good enough for you.

Well, Lloyds boss António Horta-Osório has aimed to pay out 70% of the bank’s earnings in dividends by 2015, which is higher than any other bank currently. A 3.8p payout is forecast in 2015 — yielding a market-busting 4.6%.

In addition to the attraction of dividends, Lloyds is well positioned to take advantage of rising footfall on UK high streets. Lloyds is looking at opening new mini-banks, with less staff and more machines, to satisfy customers still keen on their bank’s having a presence on the high street.

Barclays

barclaysBarclays’ 2013 results weren’t exactly great. Profits were down by a third to £5.2bn after particularly poor performance from its investment bank.

The market didn’t like that and shares traded down 5p. In fact, the trend has been down for Barclays all year, with the price dropping almost 7%. Go back 12 months and the price is down 17%.

What we have here is a value investment.

After scandals, such as PPI mis-selling, LIBOR and currency rigging, the reason is obvious why shares in Barclays trade on a P/E of less than 9.

Obvious needn’t mean right, however. Analyst consensus is that Barclays’ dividend will rise to 9.5p in 2014 and to as high as 13p in 2015. That would make for an eye-catching 5% yield just two years from now.

Barclays has placed much emphasis on cost-cutting — 1,700 jobs were slashed last year, while its investment bank could shrink 20% — to increase its capital buffer.

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.

> Mark does not own shares in any company mentioned.

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