The Lloyds (LSE:LLOY) share price is up 34% over the past 12 months. Meanwhile, Barclays (LSE:BARC) stock is up 43%. In short, both these banking peers have performed well. For several years they had both traded with very low multiples as loan default, recession, and inflation risks weighed on the share prices.
However, the broader picture looks more positive now. The economy is in a stronger place and interest rates are moving closer to the Goldilocks Zone. This is probably somewhere between 2.5% and 3.5%. It means net interest margins can remain relatively elevated while the risk of customers defaulting due to sky-high repayments, falls.
1. Price-to-earnings
Lloyds is forecast to see its price-to-earnings (P/E) ratio fall from 11.1 times earnings in 2025 to just 6.8 times by 2027. This decline is driven by a strong recovery in earnings per share, which are expected to rise from 6.49p in 2025 to 10.67p in 2027.
Barclays, meanwhile, is expected to trade at a lower P/E, starting at 7.4 times in 2025, dropping to 5.2 times by 2027. Its earnings per share are also set to grow, from 40.15p in 2025 to 57.56p in 2027.
Broadly, this strong earnings growth is reflective of the aforementioned improving operating environment. Stronger growth — stronger than in recent years — and falling interest rates also provide the conditions for an expanding loan book.
It’s also worth remembering that Lloyds, unlike Barclays, doesn’t have an investment arm. For the last few years, I’d suggest this lack of diversification has weighed somewhat on the share price. That doesn’t appear to be an issue now.
2. Revenue growth
Looking at revenue growth, Lloyds is forecast to expand its top line from £19.5bn in 2025 to £22.0bn in 2027. This represents a healthy 12.4% increase over the period. Barclays, though starting from a higher base, is expected to grow revenue from £28.4bn to £30.8bn, an 8.4% rise. While Barclays remains the larger bank by revenue, Lloyds’ faster growth rate could be a sign of improving operational momentum.
3. Dividend yield and payout ratio
For income investors, Lloyds stands out with a forecast dividend yield rising from 4.8% in 2025 to an impressive 6.5% by 2027. What’s more, it’s payout ratio is expected to decline from 53% to 44% as earnings growth outpaces dividend increases, suggesting the dividend is well-covered and has room to grow.
In contrast, Barclays offers a lower yield, moving from 3% to 4.3% over the same period. However, Barclays maintains a conservative payout ratio, hovering around 22%, and supplements its dividends with significant share buybacks. This approach provides flexibility and may appeal to investors who prefer total capital returns rather than just income.
A better buy?
In all honesty, using the above metrics, there’s not much between them. While both Lloyds and Barclays are forecast to deliver earnings and dividend growth, Lloyds looks increasingly attractive for income-focused investors, thanks to its higher and rising yield. Barclays, on the other hand, trades at a lower valuation and offers stronger absolute earnings, making it a compelling value play with the added benefit of robust share buybacks.
Investors may want to consider both stocks. I also have holdings in both and I’m unsure about buying more given the relative size of these holdings following recent appreciation.
