Why I’d ignore the Lloyds share price and buy THIS big-yielding bank

Political uncertainty in the UK is likely to keep Lloyds Banking Group plc (LON: LLOY) under pressure for some time yet. Why take a gamble here, then, when you can get big dividends elsewhere?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

These are dangerous times for Lloyds Banking Group and its investors.

Already being battered by that dreaded combination of revenues stagnation and loan impairments, a perfect illustration of a rapidly-slowing domestic economy, things threaten to get even more troublesome if the UK ambles down the path of a destructive no-deal Brexit.

In recent days I explained why betting on Bank of Georgia may be a better choice in this climate for investors determined to grab a slice of the banking sector. But this is not the only financial giant I’d rather buy over Lloyds today — indeed, I also consider Banco Santander (LSE: BNC) to be a superior stock than the Black Horse Bank.

Key markets are flying

We all know about the terrific growth rates in emerging markets, a phenomenon that’s still driving trade at Santander, despite the impact of political and economic events on business in its traditional territories of the UK and mainland Europe.

This was abundantly clear in the bank’s robust first-quarter period, three months in which it saw excellent lending in key Latin American markets of Brazil and Mexico (and a stable-if-unspectacular performance from Chile) to nudge group income 2% higher at constant rates to €12.1bn.

The numbers again illustrated the brilliant pent-up demand for banking products in these fast-growing regions — in Brazil, for instance, retail loans and consumer finance bulged by double-digit percentages whilst deposits boomed by 14%.

They also underlined the massive progress Santander is making in the red-hot digital banking arena, the number of customers using such services leaping by 6.5m customers year-on-year to total 33.9m in quarter one. The recent launch of financial advice app Santander On and online investment platform Pi in its gigantic Brazilian marketplace certainly helped light a fire under customer numbers.

A Latin lovely

And judging from recent research by McKinsey & Company, Santander has a lot more to look forward to here. The management consultancy said that “we expect Latin America to remain the growth leader in banking,” noting that banking revenues in the territory have grown around 6% faster each year than the global average and more than any other region between 2012 and 2017.

More specifically, McKinsey predicts that total Latin American banking revenues will increase at a compound annual growth rate of around 10% in the next five years, excluding the cost of risk. And underpinning these likely increases will be the region’s “very low” banking penetration — only 30% to 50% of citizens over 15 years old have a bank account, the firm estimates, versus some 90% in the UK, US or Spain — as well as a young and expanding population facilitating quicker growth.

The long-term outlook for Santander, then, looks a lot more robust than over at Lloyds, where the prospect of a no-deal Brexit is casting a suffocating cloud. Indeed, my view of the bank’s likely profits generation became a lot dimmer following an Office for Budget Responsibility report released last week.

So forget about Lloyds and predictions of more big dividends, I say. I’d much rather grab Santander and its 5.6% forward yield.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

Why the boohoo share price soared by almost 14% in November

Is troubled online fashion retailer boohoo beginning a turnaround that may cause the share price to rocket through 2025 and…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

Here’s how saving £5.40 a day could net me £1,971 yearly passive income for life

The price of a cup of coffee seems to have broken the £5 mark. Is it time to put that…

Read more »

Investing Articles

2 top FTSE 100 stocks surging to record highs (hint — not Rolls-Royce)!

Ben McPoland takes a closer look at a pair of high-performing FTSE 100 stocks that continue to enrich long-term shareholders.

Read more »

Investing Articles

A cheap FTSE 100 share to consider buying for the next 10 years!

This FTSE 100 share has pride of place in my portfolio. Here's why I think it could be a top…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Down 44% in 2 months! Is this FTSE 250 green energy pioneer priced too cheaply?

After a sharp tumble in recent months, this FTSE 250 company with a growing order book is almost 90% below…

Read more »

Investing Articles

Investing a £20k Stocks and Shares ISA in this high-yielder might give me a £2,000 annual income

Harvey Jones is now wondering whether to pour his entire Stocks and Shares ISA allowance into a single FTSE 100…

Read more »

Investing Articles

Saving £20k in an ISA? Here’s how I’m aiming to turn that into a stunning £2,035 monthly passive income

Harvey Jones is keen to build a high and rising passive income by investing in a balanced spread of top…

Read more »

Investing Articles

How I’ll aim to turn an empty ISA into a £100k nest egg buying cheap shares in 2025

Christopher Ruane explains how he thinks taking a long-term approach to buying cheap shares and holding them could help him…

Read more »