Based on their respective performances over the last five years, there is only one winner when deciding between Lloyds (LSE: LLOY) (NYSE: LYG.US) and Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US). That’s because, while Lloyds has seen its share price soar by 38% during the period, as its financial performance has gradually improved to culminate in the payment of a dividend last year for the first time since the start of the credit crunch, life has been tough for Standard Chartered. It has recorded multiple profit warnings and been on the end of severe regulatory challenges, so that its share price…
Based on their respective performances over the last five years, there is only one winner when deciding between Lloyds (LSE: LLOY) (NYSE: LYG.US) and Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US). That’s because, while Lloyds has seen its share price soar by 38% during the period, as its financial performance has gradually improved to culminate in the payment of a dividend last year for the first time since the start of the credit crunch, life has been tough for Standard Chartered. It has recorded multiple profit warnings and been on the end of severe regulatory challenges, so that its share price has fallen by 44% over the last five years.
Of course, the past is unimportant when assessing the future so, past performance aside, which one will perform the best over the next five years: Lloyds or Standard Chartered?
With many investors seeing dividends as a sign of financial health (especially in the banking sector where they have been severely lacking in recent years), a good place to start is the two companies’ dividend prospects. On this front, Standard Chartered is the winner since, unlike Lloyds, it is paying a sizeable dividend at the present time.
In fact, Standard Chartered has either maintained or increased dividends per share in each of the last four years, which means that it now yields a very impressive 5.3%. Lloyds, meanwhile, has only just restarted dividends after a period of severe losses pinned shareholder payouts back, although its rapid dividend growth over the next couple of years means that it is expected to yield 5.4% in 2016.
Not to be outdone, Standard Chartered is still expected to raise dividends next year, which puts it on a forward yield of 5.4%, too. So, while they are set to yield the same next year, Standard Chartered’s superior yield in the present year (5.3% versus 3.6% for Lloyds) makes it a more appealing income stock right now.
Although both banks are exposed to economies that are performing relatively well, their growth prospects are rather different. For example, despite being focused on the UK, Lloyds is expected to grow its bottom line by just 2% next year. This is disappointing and could hold its share price performance back in the short run.
Meanwhile, Standard Chartered, with its focus on Asia, is expected to post a much stronger growth number next year of 13%. This could cause investor sentiment to improve between now and then, as investors look ahead to a return to the kind of performance that Standard Chartered regularly delivered prior to its multiple profit warnings. And, with Standard Chartered having a price to earnings (P/E) ratio of just 9.6, it currently has a price to earnings growth (PEG) ratio of only 0.7, which indicates that its bright growth potential is on offer at a very reasonable price.
Furthermore, it highlights the lack of growth on offer at Lloyds in the near-term, with it having a PEG ratio of 4.4, although that’s due to a low forecast growth rate rather than a high P/E ratio (Lloyds has a P/E ratio of just 9.8, which shows there is considerable upward rerating potential).
Although Standard Chartered is seen as a major turnaround story, its forecast performance shows that its outlook is actually rather positive. Certainly, its share price could be somewhat volatile as a new management team makes the changes necessary to push its bottom line to even higher heights but, with it having a top notch yield at the present time, strong growth potential and a very appealing valuation, Standard Chartered seems to be a ‘screaming buy’ right now. As such, and while Lloyds is also a very appealing stock, if you had to choose one or the other then Standard Chartered appears to be the favoured choice for the long term.
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Peter Stephens owns shares of Lloyds Banking Group and Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.