Lloyds Banking Group plc, Aviva plc and OneSavings Bank plc: would I buy all three?

Are Lloyds Banking Group plc (LON: LLOY), Aviva plc (LON: AV) or OneSavings Bank plc (LON: OSB) attractive at present?

| 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.

Which is the best financial sector stock to buy as we head for Brexit and the wider world? Here are three of my favourites.

Taxpayers’ bank

Lloyds Banking Group (LSE: LLOY) has presented a dilemma for some time. On fundamentals it looks cheap, with forecasts suggesting P/E multiples of under 10 for this year and next.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

On top of that, since the dividend was reinstated in 2014 it’s been storming back. For 2016 the ordinary dividend was hiked by 13% to 2.55p per share, for a yield of better than 4%, and a special dividend of 0.5p per share was added. Forecasts would see it climbing to 5.3% this year and 6.3% next, cover looks reasonable, and in February the bank reiterated its “progressive and sustainable ordinary dividend policy“.

Why, at 68p, is the share price stubbornly staying so low? Part of it must be the uncertainty facing the UK’s banking sector as we hurtle towards Brexit with no guarantee of any deal being done yet. And with economic growth forecasts slowing, many will feel that Lloyds’ optimistic forecasts for 2017 could be cut back too.

Lloyds was also one of the big baddies over the PPI scandal, and that’s not over by some way yet.

My thought is that Lloyds’ restructured position as “a simple, low risk, UK-focused bank” should see it safely through Brexit, and I still rate the shares as a long-term bargain.

Reshaped insurer

Aviva (LSE: AV) shares slumped after the EU referendum result, but they’ve recovered strongly since then, and at 533p they now stand 54% up on their low of June last year.

Aviva looks to me to be a very different prospect now. The biggest mistake was getting overstretched, and that led to the dividend being slashed to just 15p in 2013 and to a few years of weak earnings.

But 2016 results released this month showed operating profits rising by 12% and liquidity measures looking very strong again, leading chief executive Mark Wilson to speak of “more operating profit, more capital, more cash, more dividend,” adding “and there is more to come“.

Forecasts for a big EPS rise for 2017 would drop the P/E to 10.6 (and further to 9.9 in 2018), with the dividend looking set to yield 4.9% and 5.3% this year and next. And with the quality of management running the operation now, I envisage a profitable decade ahead.

Challenging newcomer

My final pick is one of the so-called challenger banks, the smaller fish that have emerged to exploit the space in the ponds previously filled by the big boys, and it’s OneSavings Bank (LSE: OSB)

It only floated in June 2014, and already its share price is up by 146% to today’s 418p. But even after that, its shares are valued at only around the same levels as its downtrodden rivals — and OneSavings doesn’t have their legacy problems which will still take some time to unravel.

The 20% rise in underlying earnings per share reported for 2016 can’t keep going at that pace for long, but even the slower rises of 6% and 7% forecast for this year and next would drop the P/E to under nine by 2018, while the dividend looks set to rise to 3.9%.

Chief executive Andy Golding said the bank is “well placed to take advantage of opportunities in our core businesses in 2017“. 

I own Lloyds and Aviva shares, and I’d buy OneSavings Bank too.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 4 cheap shares for a market recovery

After months of sitting on my hands, I've finally taken the plunge by buying four cheap shares. Of course, their…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Here’s why I’m buying more shares in one of my best stocks to buy!

This Fool explains why he is planning on adding further shares of one of his holdings to boost his portfolio.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Just 6% of investment trusts make positive return in H1! What should I do?

The returns from investment trusts have so far disappointed this year. Here's why I plan to continue splashing the cash…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Could this FTSE 100 stock be a bargain to buy and hold?

This Fool believes there are some excellent bargains to be had on the FTSE 100 and details one he is…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Are these the best income shares to buy in 2022?

Andrew Woods wonders if he should add these two companies to his portfolio to create a consistent income stream.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

At 41p, are Lloyds shares now too cheap to miss?

As interest rates rise, Andrew Woods asks if now is the time to load up on Lloyds shares.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 dirt-cheap UK shares to buy right now!

Stock market volatility remains very high. This presents excellent opportunities for investors to buy mega-cheap UK shares like these two…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Should I buy soaring Abrdn stock? Or am I too late?

Abrdn stock jumped 8% in Wednesday morning trading. The share price has tanked this year, so maybe its fortunes are…

Read more »