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Barclays vs Royal Mail: Which of these FTSE 100 dividend stocks is the better bargain?

While the larger FTSE 100 has remained in meltdown in recent days, Barclays (LSE: BARC) has somehow managed to defy the collapse, the business trading just a shade lower for the month.

Concerns over the impact of fiscal tightening on the US economy, as well as the trickle-down effect of rising trade tensions between Washington and Beijing, hasn’t smacked investor appetite for the transatlantic bank. And nor has the rising probability of a no-deal Brexit and the rising fears for its UK unit.

The same cannot be said of Royal Mail (LSE: RMG). Caught in the wider maelstrom of collapsing risk sentiment, the courier’s share price has also plummeted on the back of a painful profit warning issued at the top of the month.

At current prices both businesses are bona-fide bargains. Well, at least on paper. Royal Mail carries a forward P/E ratio of 12.7 times, while Barclays boasts a corresponding multiple of 8.4 times. I would only have the confidence to buy one of these shares today, however.

Revenues reversing

Last time I covered Barclays, I drew specific attention to the immense dangers created by Brexit. So while latest trading numbers this week showed impressive pre-tax profit growth of 32%, to £1.46bn for the July-September quarter, this was chiefly down to a lower number of bad loans versus a year earlier. My concerns thus remain.

Indeed, Barclays’ revenues performance in the third quarter has ratcheted up my worries, a period when total income slipped to £5.13bn, from £5.17bn a year earlier. The trading environment remains tough and it’s difficult to see how the business will continue to generate strong profits growth given the stormclouds gathering over the British economy.

The results also laid bare the impact of crushing litigation costs. For the nine months to September, Barclays’ pre-tax profit ducked 10%, to £3.12bn, reflecting the cost of dealing with mis-selling mortgage-backed products in the US, and PPI-related penalties here in Britain.

Things have been quieter on this front of late but, as RBS suggested when it stashed another £200m away for the third quarter on Friday to cover more PPI claims, bills at Barclays look set to move higher ahead of next summer’s deadline.

A better package

Things haven’t exactly gone to plan at Royal Mail of late, either. As I mentioned at the start of the piece, profits projections at the country’s oldest courier have been hit by failing cost-saving targets. For the current fiscal year to March 2019, these have been slashed to £100m, from £230m previously.

Of course, this month’s update didn’t give us an excuse to break out the bunting. But the release did contain a couple of useful nuggets: UK parcel revenues rose 6% in the first half, while at its GLS European division these rose 9%.

So while cost savings may disappoint in the near term, the rate at which package volumes are rising is impressing. And that’s likely to continue in the years ahead as growth in e-commerce clicks through the gears.

In my opinion, Royal Mail is a much stronger long-term stock selection than Barclays. And with it also offering a superior forward yield of 7%, versus the bank’s 3.8%, I’d be much happier to buy it today than its FTSE 100 colleague.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.