The Motley Fool

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.