Lloyds Banking Group (LSE:LLOY) offers a generous dividend yield of 5.4%, earnings per share are 5p and the price-to-earnings ratio (P/E) is 10.8. It has a very appealing PEG factor of 0.4, as successful investors such as Warren Buffett, consider anything under 1 feasibly undervalued. Although these figures look great on paper, this does not mean the Lloyds share price is a good buy. Analysts have projected a 3% dip for the group in 2020, but this profit risk may be a conservative estimate.
Lloyds is trying its best to get noticed by younger generations, but I think its latest move could backfire if not handled carefully.
In a modern twist on advertising, the bank has created its own TV series through advertiser-funded programming. The Channel 4 personal finance series is called Save Well, Spend Better and is shown at the prime-time slot of 8pm on a Monday night. Members of the public meet in an informal setting to discuss their financial woes with a panel of advisors. It has an addictive format and I imagine it’s a show that many viewers will relate to. I think it could be popular for those seeking clear advice on how to get themselves out of financial difficulty and save their relationships.
How many of those viewers will then become customers of Lloyds is less calculable.
Brexit is still an overhanging concern for the group. If the Conservatives win the December 12 election then the current Brexit deal may go ahead on January 31. This does not bode well for the banking sector, but if a no-deal Brexit comes to pass, then further uncertainty and economic turmoil is sure to persevere.
Low interest rates have weighed heavily on the banking sector for some time now, but it doesn’t seem this will change soon. Interest rates may even be slashed further, which will reduce profitability chances.
Although Lloyds’ share price looks appealing and the fundamentals make it look cheap, I think this FTSE 100 share is too risky to buy.
Fast-moving consumer goods
An alternative FTSE 100 stock that has caught my eye is Unilever (LSE:ULVR).
Unilever is a household name and home to many branded food, home and personal care favourites including Comfort, Knorr and Surf.
Lower yielding than Lloyds, but a quality dividend payer nonetheless, Unilever offers a 3% dividend yield with 2.3 times cover. The P/E is a respectable 15 and earnings per share are almost £3. Its PEG factor is even more enticing than Lloyds at 0.2 and its third-quarter sales were 2.9% up on 2018.
Unilever is increasing its exposure to Asia, which should help to ensure continued growth. Fast-moving consumer goods face competition from supermarkets’ own-brand versions, but equally, consumers are loyal to the brands they love.
During economic downturns, consumer goods are relatively safe shares to be in as people will always require food and household essentials such as washing powder. If you are aiming to build a £1m ISA then I think Unilever should be included.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.