Investors might be tempted by the Metro Bank (LSE: MTRO) share price. Having plummeted over 40%, some may see it as a bargain. After pulling out of a £200m bond sale and announcing a serious accounting issue earlier this year, Metro Bank has been consistently falling.
In total, the stock has fallen nearly 90% since January and there is a lot to be concerned about.
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Avoid like the plague
Metro Bank appears to be far too risky for many as the attempt to raise money via a bond issue offering a 7.5% yield fell flat. Investors still avoided the company, demonstrating a severe lack of trust in the company’s future.
With one disaster after another, I would avoid investing a penny in Metro Bank. I have a feeling that the company could very soon be heading for the exit with some very worrying figures. It only joined the stock market in 2016 and was valued a healthy £1.6bn. In just three years the company is now valued at £500m. These numbers terrify me.
I think that Metro Bank will eat up your investment and offer nothing in return. I wouldn’t be tempted by the cheap price as I don’t think that it has anything to offer.
A much brighter future
I’m turning my attention to Lloyds (LSE: LLOY) instead, despite its share price decline. I believe that the majority of the share price decline is largely out of the bank’s control. With Brexit and fears surrounding the UK economy taking hold, I think that Lloyds shares have been unfairly underpriced.
The possibility of a no-deal Brexit poses a huge threat to all banks, not just Lloyds. So, why would I consider investing in Lloyds? Because there is a whole host of benefits that its shares can bring investors.
The Lloyds dividend yield currently stands at a very tempting 6%, which is considerably higher than the FTSE 100 average of 4.5%. This offers instant rewards for investors and is currently an exceptionally safe dividend. Payout cover is expected to increase to 2.2x next year, which means that profits would have to drop by 50% before the company would have to reduce the dividend.
Lloyds is growing and improving as a business. It’s rapidly going digital, which is helping it to cut costs, while expanding its mortgage and credit card business. On top of this, I think that the company is very well placed to deal with Brexit in comparison to smaller banks.
Lloyds is due to report third-quarter earnings on the same day as Brexit, October 31! Hopefully, this isn’t a bad omen and the company will have something positive to report. While bad news could lead to a short-term fall, I believe that in the long term, this stock has a lot to offer investors.
With a P/E of 9, I don’t think you can go far wrong by investing in Lloyds and reaping the rewards of huge dividends.
