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Why I’d ignore the Lloyds share price and buy these FTSE 100 dividend stocks

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To the uninitiated, Lloyds Banking Group share price may be one of those proverbial gift horses whereby an extensive oral examination is really not required.

Thanks to the 64% earnings rise City analysts are forecasting for 2018, the Black Horse bank deals on a forward P/E ratio of 8.7 times. As if this wasn’t good news enough, the dividend is predicted to rise to 3.4p per share this year, meaning investors can enjoy a juicy 5.4% yield. And the good news gets better for 2019, with the anticipated 3.7p dividend yielding and amazing 5.9%.

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However, investors need to be mindful that the trading environment could become trickier for Lloyds over the medium term as Brexit dampens the UK economy. This is reflected in broker forecasts which have been busily downgraded as 2018 has progressed, and the bank is now only expected to report a fractional earnings rise next year.

I’d rather buy this dividend hero

Some may argue that Lloyds’ forward P/E ratio, well below the value watermark of 15 times, bakes in the probability of earnings misses in the near term and beyond. This may well be true, but the fact remains that there are plenty of other FTSE 100 quotes trading on similarly-undemanding multiples but which have much more secure profits outlooks than the banking colossus.

Take ITV (LSE: ITV). Its share price has risen in recent months as the pressures of constrained ad budgets have eased. Yet it can still be picked up on a forward P/E ratio of just 10.8 times.

This is a steal, in my opinion. As my Foolish colleague Ian Pierce pointed out, while a recovering ad market is of course great news, it’s ITV’s increased emphasis on producing great, original content which really makes it a standout buy. Revenues at ITV Studios rose 16% in the six months to June, to £803m.

The profits recovery is expected to be slow rather than spectacular, with it anticipated to recover from the 3% bottom-line dip forecast for this year, with a fractional rise next year. This wouldn’t deter me from investing, however, as these predictions still lay a strong base for predictions of further dividend growth.

An 8.1p per share reward is estimated for 2018, up from 7.8p last year, and yielding 4.9%. And the dial moves to 5.1% for next year, thanks to the anticipated 8.4p dividend.

… or even this income star

I’d also happily buy Ashtead Group (LSE: AHT) instead of Lloyds at the current time.

In fact, the rental equipment specialist is a better bet than the bank in terms of both its growth and dividend prospects. Profits are expected to keep swelling by double-digit percentages over the medium term, by 28% and 13% in the years to April 2019 and 2020, respectively. That’s not a surprise given the rate at which sales are surging (rental revenues at group level leapt 21% in the 12 months to April just passed).

And current projections leave Ashtead dealing on a dirt-cheap forward earnings multiple of 14.3 times.

Meanwhile, the rampant dividend expansion of recent years is expected to continue, resulting anticipated payouts of 36.9p per share in this period (up from 33p last year), and 39.7p in 2019. Subsequent yields of 1.6% and 1.7% may be handy, if unspectacular, but the chances of strong and sustained dividend growth long into the future makes it a much better bet than riskier big yielders like a Lloyds.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and Lloyds Banking Group. 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.

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