The Motley Fool

Why I would choose the Lloyds share price over HSBC after this week’s results

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.

One pound coin
Image source: Getty Images.

It’s been quite a week for the banks, although as ever you have to swallow the bad news along with the good. However, it does seem that the balance is shifting in favour of the latter.

Laugh out Lloyds

Lloyds Banking Group (LSE: LLOY) and HSBC Holdings (LSE: HSBA) have both reported in recent days, but Lloyds enjoyed the warmer welcome after posting full-year profits of £4.4bn for 2018, up from £3.5bn the year before. It further delighted investors by hiking its dividend 5% to 3.21p, and announcing a share buyback of up to £1.75bn.

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!

The bank now pays more dividends than before the financial crisis, and currently offers a forward yield of 5.8%, with cover of 2.1. This is expected to hit 6.3% by 2020. It looks like a dividend machine once more and is also the UK’s most profitable bank.

PPI deadline looms

Lloyds was hit hardest of all by the PPI mis-selling scandal, paying out around £19bn compensation since 2011. However, payouts were ‘just’ £750m last year, down from £1.65bn in 2017. The final deadline for claims expires on 29 August, and although people expect a last-minute flurry, it can then draw a line under the dismal affair.

I’ve been tipping the Lloyds share price for some time but to little avail, it is down 14% over one year and 27% over five. However, with the stock trading at just 7.9 times earnings and a price-to-book (P/B) ratio of 0.9, it still looks like a good opportunity to me, especially since City analysts forecast earnings will grow 35% next year.

The most immediate worry is Brexit, given Lloyds’ domestic focus, and no-deal could lead to a surge in loan impairments, currently negligible. It may struggle to grow in the mature, highly regulated UK market that is swarming with challenger banks but I still reckon it’s a fine long-term income play.

China crisis

HSBC currently offers the most generous bank dividend with a forecast yield of 6.4%, but cover is relatively thin at 1.5. It is also the most expensive of the big FTSE 100 banks, as measured by its P/E of 11.28 times, according to research from Hargreaves Lansdown. Its P/B ratio is benign at 0.8, though. 

While Lloyds has fallen 27% over the past five years, HSBC is down just 3% in that time although the last 12 months have been rocky when it dropped like a stone. It was caught out by difficult trading conditions in the final quarter of last year, with profits of $3.70bn coming in 17% below market expectations and 40% below the previous quarter’s result.

Uncertain times

HSBC’s much-heralded strength is its massive exposure to fast-growing Asian markets, but the US-China trade war has turned that into a liability for now. It nonetheless reported underlying annual profits of almost $22bn while earnings grew, costs were kept in check and it boosted its return on equity.

The banking sector faces a host of uncertainties, from Brexit, to the pace of interest rate hikes, to concerns over the slowing global economy and the likely impact on impairments. If we get a Brexit fix I would buy Lloyds first, but I’d also seriously consider HSBC.

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…

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.

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.