2 FTSE 100 financial stocks that I think could perform better than expected

Shares of Aviva and Lloyds could be good income plays, I believe.

| 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.

Many UK financial stocks are currently trading at attractive dividend yields due to the political uncertainty in the country. Today, I want to look at two FTSE 100 stocks in particular that I think can deliver good returns for income investors — Lloyds (LSE: LLOY) and Aviva (LSE: AV).  


Shares of the UK’s largest retail bank have oscillated somewhat over the course of the last year, but right now they are trading around 5,400p a share, which is near the middle of their yearly range. Shareholders had to endure a painful August as the stock lost 7% of its value over the course of the month. However, at the time of writing, the shares seem to have recovered.

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!

What has been the main factor behind the market’s uncertainty about this venerable banking giant? In a word, Brexit. Specifically, the threat of a no-deal scenario represents a serious threat to all banks, not just Lloyds. It has done a good job of refocusing itself on domestic retail banking. The problem with this pivot is that it makes it more reliant on the UK economy, and in particular on consumer sentiment. Mortgage lending also represents an important source of revenue for the bank, so a slowdown in the property market as a consequence of a no-deal Brexit could also adverse impact the share price. 

With all that being said, I do think that shares of Lloyds represent a good opportunity for income investors. Currently, they have a dividend yield of 6%, which outstrips the FTSE 100 average of 4.5%. Moreover, as I have argued previously, I think that while Brexit certainly poses a problem to UK banks in the short term, in the grand scheme of things, larger banks like Lloyds are probably better-positioned to deal with the fallout than some of the smaller banks that have emerged in recent years to nip at the heels of established players. 


Shareholders of insurance company Aviva went through a similar experience in the month of August as the one described above, with the stock falling 11% as the market confronted the possibility of a no-deal Brexit. Just like Lloyds, these losses have been largely recovered in September. However, unlike Lloyds, Aviva has many interests and businesses in the EU, including in France, the Netherlands and Poland. This makes it somewhat more insulated against a potential Brexit shock.

As noted by my colleague Manika Premsingh, Aviva is priced at a significant discount to its peers in the insurance industry — Prudential carries a price-to-earnings ratio of 21.7, compared with just 6.7 for Aviva. Legal & General carries a P/E of 8.14. 

Overall, I expect both Lloyds and Aviva to do better than the market seems to expect. However, given its slightly higher dividend yield, attractive valuation relative to its peers and geographical diversification, I give Aviva a slight edge.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Stepan Lavrouk owns no shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Prudential. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Portrait of construction engineers working on building site together
Investing Articles

Is this FTSE 100 stock the best housebuilder to invest in?

One FTSE 100 housebuilding stock has outperformed all of its industry peers by a big margin this year. Should I…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

2 cheap dividend growth stocks I’d buy as the economy sinks

I'm searching for the best bargains to buy following recent market volatility. Here are two top dividend growth stocks I…

Read more »

estate agent welcoming a couple to house viewing
Investing Articles

Here’s 1 FTSE stock primed to benefit from the current housing market!

With the current housing market as it is, Jabran Khan explores a related FTSE stock that could provide stable and…

Read more »

Portrait of construction engineers working on building site together
Investing Articles

Here’s why this AIM-listed stock could be one of the best shares to buy!

This Fool is looking for the best shares to buy. Despite macroeconomic issues, this stock could be a great long-term…

Read more »

Elderly father and adult son work in the garden
Investing Articles

This penny stock could be set to soar! Should I buy shares?

This Fool looks closely at a penny stock operating in an exciting growth market that could see its shares rise…

Read more »

Illustration of bull and bear
Investing Articles

The next stock market recovery looks imminent

As the stock market bear gives way to the bull, some stocks are already turning up and I'm ready to…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

2 dividend shares to protect me from soaring inflation

Dividend shares can be an excellent way to keep up with inflation. Our writer explores several options to protect his…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is it time to buy Unilever stock?

Unilever stock has underperformed in the last five years. But with its portfolio of powerful brands, should I buy now…

Read more »