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Why the Lloyds share price could revolutionise your retirement saving plans

Results released this week by Lloyds (LSE: LLOY) were met with little fanfare by investors. In fact, the headline-grabber from the update was a further PPI provision which ate into the company’s reported profitability.

Despite this, the stock could offer an impressive long-term growth outlook. It may not be relatively popular at the present time, but alongside another FTSE 100 financial services company, it could improve your retirement saving plans.

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Solid performance

The underlying performance of Lloyds has continued to be strong despite a tough operating environment. As the most UK-focused of the FTSE 100’s banking stocks, it has performed surprisingly well at a time when GDP growth is falling, interest rates remain relatively low and business confidence is continuing to slide following the 2016 EU referendum.

In the near term, those same drivers could keep the stock’s valuation pegged back. It currently trades on a price-to-earnings (P/E) ratio of around 9, which suggests that it offers a wide margin of safety. And with its bottom line forecast to rise modestly in 2019, its outlook is not as downbeat as the stock market is pricing in.

In fact, Lloyds has an ambitious growth strategy. It is investing heavily in its digital growth capabilities, while further acquisitions cannot be ruled out following the purchase of MBNA. And with dividends continuing to rise so that it has a yield of around 5.5% at the present time, the total return potential of the stock seems to be high.

While the FTSE 100 may be at a record high, Lloyds proves that there are still cheap stocks on offer for long-term investors. Buying it now could lead to improved portfolio performance in future years.

Low valuation

Also offering encouraging long-term growth prospects is FTSE 100 insurance company RSA (LSE: RSA). It released interim results on Thursday which showed a rise in earnings of 18%, as well as dividend growth of 11%. The company’s activity levels were high across all divisions during the period as it seeks to build capability in order to outperform in its markets.

The company’s underwriting results were below its targets due to adverse weather costs. Underwriting profit of £171m was 23% lower than in the same period of the previous year. However, the underlying performance of the business remains relatively solid, and this suggests that it could deliver improving results in future.

In fact, with RSA forecast to post a 10% rise in earnings in each of the next two financial years, investor sentiment could improve. The stock trades on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it may be undervalued. With a dividend yield that is expected to be in excess of 5% next year, the total return on offer could be high. This may allow it to outperform the FTSE 100 and boost your retirement prospects in the long run.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended 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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