The Motley Fool

Forget the Lloyds share price (LON: LLOY)! I think this dividend stock’s better for ISA investors

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Dice engraved with the words buy and sell, possibly in FTSE 100
Image source: Getty Images.

It’d take a braver man than me to buy into Lloyds Banking Group (LSE: LLOY) ahead of third-quarter financials on October 31. When I last covered the battered bank, I smacked my forehead in dismay as it axed buybacks following a recent surge in PPI-related claims.

My worry is that another hike in provisions could be on the cards and possibly as soon as next month, adding more stress to the FTSE 100 firm’s already-declining capital buffer. I also fear what a declining UK economy will mean for Lloyds’s top and bottom lines in that upcoming release. Pre-tax profits fell 4% in the first half amid a slight revenues drop and ballooning bad loans.

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 month of October could spell disaster for Lloyds’s share price not just because of those scheduled quarterlies though. The UK also remains set to exit the European Union on that date with a deal or otherwise, of course, an event that could have significant ramifications for the domestic economy through the next decade. Indeed, the OECD recently predicted this could plunge the country into recession in 2020 and shave 3% off national GDP over the next three years.

Cheap but risky

There’s clearly a lot to fear with the Black Horse Bank and ample reasons to expect its share price, which has shrunk by around 20% from its 2019 highs hit in April, to continue to fall.

So I’m happy to ignore Lloyds despite its low valuation, a forward price-to-earnings ratio of around 7 times. It’s not low enough to reflect the possibility of near-term profit projections being blown off course, nor the possibility of a prolonged downturn in the retail banking market. Nor am I encouraged to buy due to the firm’s 6.3% corresponding dividend yield, given the growing pressure on the balance sheet.

I think ISA investors desiring a slice of the banking sector need to look for firms with little or no exposure to the UK economy, as well as those which don’t do their accounting in sterling. And, in my opinion, Santander (LSE: BNC) fits the bill perfectly. Today, it generates 11% of profit from these shores while it accounts in euros rather than the pound.

A better dividend buy

In fact, the bank is actually pretty-well diversified in terms of its geographical make-up, sourcing around 45% of profits from Europe, 38% from South America, and the remaining 17% from North America. This gives it the sort of strength which Lloyds would no doubt crave at the current time. In my opinion though, it’s the company’s rising might in Latin American countries which makes it such a great bet for long-term ISA investors.

Broad economic conditions might be a bit turbulent right now, but thanks to low financial services penetration in these markets, allied with explosive population growth and rising wealth levels, Santander can look forward to some exceptional earnings growth in the years ahead.

Now the FTSE 250 bank might not offer the sort of value as its Footsie 100-quoted rival, but it’s not far off. At current prices, it trades on 7.6 times forward earnings while it boasts a 6% dividend yield for 2019 too. And I reckon its low rating fails to illustrate its exceptional growth prospects over the next decade and beyond.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his 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 click below to discover how you can take advantage of this.