The Motley Fool

A ‘secret’ dividend and growth banking stock I’d buy over Barclays plc

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.

I like the look of Paragon Banking Group (LSE: PAG), which updated the market with its full-year results today. The numbers look good with underlying profit up 1% and basic earnings per share lifting 6.4%.

The directors pushed up the dividend by a little over 16% underlining the firm’s attractions as an income investment. Today’s share price around 472p throws up a forward dividend yield around 3.4% for the trading year to September 2018. Not bad, but the firm is committed to giving more back to investors, saying it reduced the dividend cover ratio of 3 to 2.75 for 2017 and expects to reduce cover down to 2.5 for 2018.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

An emerging force

As a bank, Paragon is not embroiled in legacy issues or engaged in trying to turn its business around like old-guard firms such as Barclays (LSE: BARC). Growth in earnings at Paragon looks ‘clean’ whereas Barclays looks like it’s struggling to regain lost ground after a few years of earnings reversals.

Paragon reckons it has spent the last few years in transition from “a monoline centralised lender to an increasingly diversified banking group.” During the year to September, the directors reorganised the structure so that most operational activities moved to its banking subsidiary, Paragon Bank, following authorisation from the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). The company changed its name to Paragon Banking Group in September 2017 to become an emerging force on the banking scene in Britain, so I reckon ‘right now’ is a good time to look more closely at the stock.

City analysts following the firm predict that earnings will grow 11% for the year to September 2018 as the firm targets the needs of consumers and small/medium enterprises (SMEs) as a specialist lender in the UK market. The directors say that strong organic growth looks set to continue but that will be augmented by merger and acquisition (M&A) activity if opportunities arise.

As well as ensuring that strong capital and leverage ratios keep the business robust, the directors plan to bung around £50m into an ongoing share buy-back programme, which could end up enhancing returns for investors as long as the underlying business keeps growing. Meanwhile, we can pick up some of the shares on a forward price-to-earnings (P/E) ratio just below 10, which seems undemanding.

Barclays staggers to its feet

The firm shapes up well against Barclays. The five-year financial record shows mostly double-digit annual percentage increases in earnings, whereas Barclays posted big earnings reversals as often as advances over the same period. Meanwhile, Barclays’ forward dividend for 2018 will be lower than the firm paid out in 2012 – Paragon’s will be around 124% higher over a similar period.

Back in October, chief executive, James E Staley, said: “The third quarter of 2017 was particularly significant for Barclays as it was the first for many years in which we have not been in some state of restructuring.”  We could argue that now, then, is the perfect time to focus on the firm as it rises from the quagmire of its past. But why take the risk? Who knows what further problems may yet emerge from the banking goliath. I’d rather take my chances with the vibrant new upstart in town, so my attention is on Paragon.

Stocks for the long term

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.


Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.