Lloyds Banking Group plc, Barclays plc or HSBC Holdings plc: Which FTSE 100 Giant Should You Buy?

Today I’ll be taking a closer look at three British banking giants – Lloyds (LSE: LLOY), Barclays (LSE: BARC) and HSBC (LSE: HSBA). Should you be risking your savings on any of these high street banks?

Dividends rising

Lloyds shares have declined 17% over the last 12 months, but have still outperformed fellow high street banks Barclays, HSBC and RBS. So why has Lloyds fared better than its rivals?

I believe the answer lies in the dividends. Healthy dividends can help support a share price, as the share price falls more investors are attracted to the increasing yields, it’s as simple as that. Lloyds dividends have been rising since 2014, and this is set to continue, with 4.32p per share expected for this year, increasing to 5.18p for 2017, giving prospective yields of 6.4% and 7.6%, respectively.

Great news for income seekers, but are the shares cheap or expensive? Lloyds trades on 8.5 times forecast earnings for 2016, falling fractionally to 8.4 in 2017. In my view the shares aren’t as cheap as they look, given the uncertainty over future profits, but the dividends are attractive and could help to provide some resistance to further share price declines, as long as earnings remain stable.

Contrarian opportunity?

Barclays got a boost from Société Générale last Wednesday when the French investment bank it reiterated its buy rating on the UK bank, with a 245p price target. This represents a huge premium on the current market price of around 150p. There was a further boost on Thursday when Shore Capital also confirmed its buy recommendation on the stock. So is this bullishness justified, or just too optimistic?

Well, the near-term outlook doesn’t look too bad, with consensus forecasts suggesting that after a flat year in 2016, earnings should jump by a healthy 36% in 2017. Dividend forecasts aren’t so healthy however, with 3.75p per share expected for this year, rising to 4.2p for 2017, offering prospective yields of just 2.5% and 2.8%.

Barclays trades on a forward price-to-earnings ratio of 9 for 2016, falling to a very cheap-looking 6.6 for 2017. The shares have fallen 41% over the last 12 months and this could be a good buying opportunity for contrarians.

Fat and juicy income

On Thursday it was revealed that HSBC was planning to close approximately 200 branches in the UK, equating to around a fifth of its entire high street presence. In line with similar statements from RBS and Barclays, the bank pointed to the increase in online and mobile banking as the main reason for reducing the branch network.

No doubt this move will reduce costs, but how does the future look for our largest bank? Well, our friends in the City expect earnings to fall by a modest 4% this year, with a 9% rebound pencilled-in for 2017. But the real story is the dividends. The payout for 2016 is forecast at 35.44p per share, rising slightly to 35.96p for 2017, giving yields of 8.1% and 8.2%, respectively. Oh yes, that’s what I call a meaty dividend.

The valuation doesn’t look too bad either, with the shares trading on 9.4 times forecast earnings for this year, falling to 8.7 times next year. After hefty falls I think the shares have been oversold and have brought the juicy dividend income into the irresistible category.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.