Many share pickers out there remain convinced that Lloyds Banking Group remains an attractive investment destination right now.
They argue that City predictions of sustained earnings rises through to the end of next year, allied with its bulky dividend yields of 5.4% and 5.9% for 2018 and 2019, respectively, make it a brilliant FTSE 100 share to load up on today.
I’m far from convinced. The rising headwinds facing the UK economy as the Brexit saga unfolds are significant. I reckon current forecasts are almost definitely likely to be harshly downgraded in the months ahead, so Lloyds’ low, low forward P/E ratio of 8.3 times holds no sway with me.
What’s more, current dividend targets could also take a whack should the number of PPI misconduct claims continue shooting skywards and heap extra strain on the balance sheet.
If you’re looking for terrific cut-price dividend shares, I believe that fellow Footsie-quoted firm Go-Ahead Group (LSE: GOG) is a much better bet.
The bus and railways operator is slightly more expensive than the Black Horse Bank, the FTSE 250 member dealing on a forward P/E ratio of 10.4 times. On the other side of the coin though, Go-Ahead offers a larger dividend yield which sits at 6% for the 12 months to June 2019.
Now Go-Ahead is anticipated to record a painful 28% earnings slide this year, but the longer-term outlook is more solid for the company. It inked two additional bus contracts in Ireland and Germany last year and, thanks to what it describes as “a good pipeline of upcoming opportunities,” it’s expecting its international expansion programme to push total profits generated from overseas markets account for between 15% and 20% of the group total by 2022.
With the company also dedicated to improving and growing its core UK rail and bus services, I reckon the chances of strong and sustained earnings — and thus dividend — expansion beyond the more immediate term look much more secure here than at Lloyds.
A dividend stock worth saluting
I believe fellow Footsie share Admiral Group (LSE: ADM) is also a better income bet than the banking giant.
Like Go-Ahead, it is also costlier than the Lloyds, the business dealing on a forward P/E multiple of 16.8 times. But in my opinion, predictions of solid earnings growth through to the close of next year — rises of 4% and 7% are currently anticipated for 2018 and 2019, respectively — stand on much stronger foundations than the comparable City forecasts for Lloyds.
The outlook for motor insurance premiums looks pretty stable for the next year or so, while Admiral’s European operations are also gaining traction at an impressive rate. Thanks to strength on the continent, the number of international customers on its books rose 17% from January to June, to 1.12m, matching the rate of growth in its core British division.
What’s more, Admiral’s balance sheet is so robust that the insurer has been encouraged to fork out special dividends of late, a strategy that the number crunchers expect to continue for the foreseeable future. Consequently, yields at the firm stand at a huge 5.6% for 2018 and 6.5% for next year, beating Lloyds’ corresponding figures hands down.
And I’m confident that the insurer, like Go-Ahead Group, can continue beating Lloyds in the dividend stakes long into the future.
Royston Wild has no position in any of the shares mentioned. 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.