These are dark days for shareholders in Lloyds Banking Group. Its share price has plummeted 21% since the turn of the year. And you’d be either extremely brave or foolhardy to predict any sort of imminent recovery, as the implications of Brexit steadily lift impairments and deal a hammer blow to revenue growth.
I can see why the business may remain a popular pick with income investors, despite those troubles. With City predictions of further dividend growth through to the end of 2020 come monster yields of 6.9% and 7.3% for this year and next. Those are estimates which trump the FTSE 100 forward average of 4.5%.
But the numbers don’t carry any weight with me, I’m afraid. There are several blue-chips out there which ‘out-yield’ Lloyds and provide far superior profits outlooks in the near-term and beyond. Take Barratt Developments (LSE: BDEV), for example.
While trading at the Black Horse Bank has been getting progressively worse as Brexit bites, homebuilder Barratt is continuing to thrive as latest financials this week showed. Although revenues dipped 2.3% in the 12 months to June, a significant improvement in margins (up 2.1%) helped power pre-tax profit to £909.8m, up 8.9% year-on-year.
Like Lloyds, Barratt’s fortunes are, of course, dependent upon economic conditions in the UK. However, so huge is the shortage of new homes here that the business remains robust in spite of this unprecedented political maelstrom and the threat of a no-deal EU withdrawal. This is why the Footsie firm currently enjoys strong forward sales of around 12,911 homes, up from 12,648 homes a year ago.
It’s clear then, Barratt’s in better shape to keep growing profits (and dividends), given the likely persistence of demand-boosting factors such as low interest rates and Help To Buy, coupled with that aforementioned supply shortage. Oh yes, and before I forget, that monster forward yield which I mentioned earlier sits at a market-mashing 7.6%.
9% yields? Yes please
I would argue that Aviva (LSE: AV) is also a better bet than Lloyds at the current time. It certainly appears to provide better value for money based on current City projections. At recent prices, the FTSE 100 insurer boasts dividend yields of 8.7% for 2019, and 9% for 2020. But that’s not all. Aviva is also cheaper in respect of projected earnings too. Its forward price-to-earnings (P/E) ratio of 6 times comes in lower than the bank’s 6.6 times.
Lloyds’s low rating reflects the possibility of tough economic conditions persisting as the UK approaches the Brexit cliff-edge. However, I’ve no fear over Aviva’s earnings outlook either in the near term, or beyond.
The business may be putting its Asian operations on the auction block but, ultimately, its broad presence in international markets provides the strength to keep growing profits at a swift pace. The same can be said for its diverse product mix too, as well as its drive to embrace modern trends such as ageing populations and increased digitalisation.
So forget Lloyds, I say. There are much better blue-chip income shares to buy today if you’re looking to load your ISA.
Royston Wild owns shares of Barratt Developments. 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.