Just look at a gigantic 6% dividend yield for 2019 that leaves the 4.5% broader forward average for the FTSE 100 standing; plans to distribute dividends on a quarterly basis; and a robust balance sheet (with a CET1 ratio of 13.9% as of March), which prompts brokers to forecast another payout hike this year.

None of this matters a jot to me. I’m more worried about how Lloyds’ bottom line will fare in the near term and beyond as the UK economy implodes under the weight of Brexit. The bank is already suffering under the strain, with revenues growth grinding to a halt and the bad loans on its books rising (up 7% year-on-year in the first quarter).

Lloyds’ share price has contracted 13% over the past three months as conditions have toughened, and there’s plenty more reason to expect it to continue sliding as the British economy deteriorates. Why take a chance here when there’s much better, big-yielding banks to be bought today?

The Georgian era

Take Bank of Georgia Group (LSE: BGEO), for example. While Britain appears to be teetering on the brink of recession and in danger of a prolonged Brexit-related hangover, economic growth in the Eurasian nation continues to impress, and is predicted to keep doing so. The International Monetary Fund expects expansion of 4.6% for 2019 to improve to 4.8% next year and to 5% in 2021.

Little wonder, then, that Bank of Georgia’s revenues and pre-tax profits (excluding one-off termination payments to former executives) ballooned 10% and 11% in the first quarter, to 258.7m and 112.2m Georgian lari respectively.

Look, I understand that many investors might consider London’s centuries-old banking sector as a safer place for their money than that of an emerging market like Georgia. However, recent regulatory changes — like raising capital requirements and encouraging responsible lending — makes investment in the country’s banks a much safer proposition than a few years back.

Besides, I would argue that its forward P/E ratio of 5.3 times more than reflects any risks which Bank of Georgia offers up in the near term or beyond.         

A better dividend stock

Any discussion about Lloyds isn’t complete without discussing its dividends. So here we go.

The bank’s payout policy set off like a train upon its resumption in 2014, but that electric payout growth has slowed significantly. City analysts expect expansion to remain rather sluggish, last year’s dividend of 3.21 per share expected to rise to just 3.4p in 2019.

Conversely, payouts at Bank of Georgia have ripped higher more recently, culminating in 2018’s total payout equivalent to 71p per share. It’s anticipated to rocket to 81p this year, too, resulting in a chubby 5% yield. And this is supported by the bank’s similarly robust balance sheet, which boasts a CET1 ratio of 12.7%.

So which is the better dividend pick? There’s no room for debate, in my book. Bank of Georgia may have the smaller near-term yield, but I believe it has the capacity to keep turbocharging dividends in the years ahead. Lloyds, on the other hand, may struggle to raise dividends at all should a prolonged and/or destructive Brexit process materialise and cause profits to slide. So give the British bank a miss, I say, and go income hunting in Georgia instead.

The post Forget Lloyds! I think this is the better bank to buy for BIG dividends appeared first on The Motley Fool UK.

More reading

• As the Lloyds share price falls while profits rise, is it time to dump?
• How much is needed in an ISA for an annual income equal to this year’s £12,547 State Pension?
• What next for Lloyds shares after better-than-expected Q1 results?
• 2 bank shares to consider buying before Lloyds in May
• 2 stupidly cheap shares to consider buying now to try and make a million

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.

There’s never been a better time for investors to go hunting for income on Britain’s elite stock index, largely speaking, though Vodafone is unlikely to be the last blue-chip to slash payouts this year. I picked out a retailer and a utilities supplier in recent days that could both be on the precipice of reducing shareholder rewards, and they’re unlikely to be the only Footsie firms to curtail dividends in the coming months.

Flying high

If you fancy grabbing some dividend stocks, but want to avoid the FTSE 100 for the time being, happily there’s no shortage of income heroes to choose from. Indeed, big yielder BBA Aviation (LSE: BBA) is one FTSE 250 share I’m tipping to keep increasing dividends, and most recent financials reinforced my bullishness on the business.

I’ve long lauded the brilliant sales opportunities the company’s M&A-led growth strategy has provided, and in the first four months of 2019 revenues at group level boomed 23.1%. The result revealed the impact that recent acquisitions action, like the purchase of fuel supplier EPIC and component builder Firstmark in 2018, have had on the top line.

Despite the impact of slowing business and general aviation traffic in the US, the vast investment BBA Aviation has made in recent years to bolster its geographic footprint and range of solutions is allowing it to outperform the broader market by some distance (while US aviation activity rose just 0.3% between January and March, revenues at the company’s flagship Signature flight support division increased 1.2% on a like-for-like basis).

It’s no wonder City analysts are expecting earnings, as well as dividends, to keep rising through to the close of next year, meaning investors can enjoy juicy yields of 4.2% and 4.4% for 2019 and 2020, respectively. Chuck its undemanding forward P/E ratio of 15.4 times into the equation and I think BBA is a great stock to pick up today.

Bank on big dividends

Before I let you go, I also want to highlight Bank of Georgia (LSE: BGEO) as another share from the FTSE 250 I expect to keep growing shareholder payouts too.

I last covered the emerging market share when it announced ripping revenues growth in 2018, and I’m pleased to say trading has remained ultra-encouraging since. Last week, the bank declared profit before tax (and excluding one-off termination payments to management) exploded 10.6% between January and March to 122.7m Georgian lari, while its loan book surged by a staggering 14.7% year-on-year at constant currencies.

Bank of Georgia is thriving thanks to the twin drivers of breakneck economic growth in the Eurasian nation’s economy and the low levels of banking product penetration there. And it’s why the number crunchers are expecting earnings to keep swelling over the next couple of years here as well.

Oh, and speaking of those dividends, expectations of bright growth to the end of 2020 results in giant yields of 5.5% and 6.4% for this year and next, respectively. Chuck a low forward P/E ratio of 6 times into the bargain too, and I reckon Bank of Georgia is a terrific income titan to load up on right now.

The post I say avoid the stress of FTSE 100 dividend cuts with these FTSE 250 income stocks appeared first on The Motley Fool UK.

More reading

• 2 bank shares to consider buying before Lloyds in May
• 2 stupidly cheap shares to consider buying now to try and make a million
• Up 887% with a P/E of just 8! Meet the eye-popping FTSE 100 bank that’s smashing Rolls-Royce
• Looking for FTSE 100 bargain stocks? Check these out!

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. 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.

In these uncertain economic and political times it’s worth protecting yourself by investing in shares where, unlike those mentioned above, strong trading conditions in Britain aren’t critical to drive the bottom line.

Taking this theme one step further, a great way to try and make a big cash pile for the years ahead is to buy into banks with significant emerging market exposure, regions where economic growth often powers comfortably ahead of those of so-called developed nations.

Georgia on my mind

Take Bank of Georgia Group (LSE: BGEO), for example. GDP expansion in the country continues to tear away and, according to the national statistics office Geostat today, the economy grew by a stonking 4.8% in 2018. Compare this with the 1.8% rise in the eurozone last year or the sub-1% rise anticipated in Britain for the same period.

Recent trading numbers showed the brilliant sales opportunities that Bank of Georgia enjoys. Revenues jumped 19.4% between July and September, to 266.6m GEL (Georgian Lari), as soaring credit demand also drove the loan book more than a quarter higher year-on-year to 8.72bn GEL. Consequently pre-tax profit before exceptional items soared 15.7% to 117.1m GEL.

Unsurprisingly, then, City analysts are expecting earnings to boom 19% in 2019, and this underpins hopes of a bulky 90p per share dividend. A consequent 5.7% yield gives plenty of reason for income investors to take a look, while the bank’s low forward P/E rating of 4.9 times should tempt value hunters to grab a slice of the action too.

Spanish star

Now Banco Santander (LSE: BNC), like Lloyds et al, isn’t immune to the economic troubles that Brexit is bringing, the business generating 13% of underlying attributable profit from these shores. Adding further trouble to the pot, the decelerating eurozone economy threatens profits growth at the Spanish bank, too, because more than half of group profit is generated in Europe.

That said, I’m impressed by Santander’s resilience in recent times despite worsening economic conditions on the continent and am confident that it has the tools to keep thriving. In recent days it advised that attributable profit leapt 18% year-on-year in 2018 to €7.81bn, with growth speeding up to 34% in the final quarter to €2.07bn.

It’s this ability to thrive in a tough environment that encourages City brokers to predict a 9% earnings uplift in 2019, optimism that translates into predictions of a chubby 23 euro cent dividend. Consequently the firm sports a market-beating 5.6% yields.

At current prices Santander is a steal, in my opinion, the bank dealing on a prospective P/E multiple of 7.9 times. This is also particularly cheap when you consider its exceptional revenues outlook in Brazil, from where it generates 26% of total profits, as well as the rest of Latin America’s major other emerging economies like Mexico and Chile.

The post Forget Lloyds, Barclays and RBS. I think these 5%-yielding banks are better ways to get rich appeared first on The Motley Fool UK.

More reading

• 2 bank shares to consider buying before Lloyds in May
• 2 stupidly cheap shares to consider buying now to try and make a million
• Up 887% with a P/E of just 8! Meet the eye-popping FTSE 100 bank that’s smashing Rolls-Royce
• Looking for FTSE 100 bargain stocks? Check these out!

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

Now on the face of it, comparing BGEO, the holding company for Bank of Georgia, and Barclays seems a bit like comparing apples and oranges. However, a retail bank with low operating costs, a very profitable investment bank, no legacy misconduct issues and stunning profitability shows that Bank of Georgia is what Barclays should aspire to be. And the phenomenal returns of BGEO over the past five years show exactly why investors should cheer for this.

The driving forces behind its success have been steady mid-single-digit GDP growth for the past decade in Georgia, and a successful programme of taking market share from competitors by offering best-in-class retail banking capabilities. The bank now has around 30% market share in the country and growing scale has allowed it to keep operating costs much lower than comparable British banks. In first nine months of 2016, Bank of Georgia’s cost-to-income ratio was a stunningly low 37.7%, while return on average equity was a very impressive 22.8%.

This high level of profitability combined with top line growth boosted profits by 57.9% year-on-year to £112.2m in the first three quarters of 2016. And with return on equity steadily rising and the bank targeting 20% annual growth in the retail operation over the medium term, there’s plenty of potential future profit growth. This is great news for investors as the bank’s policy of returning 50% of profits in dividends means analysts are pencilling in a 3.5% dividend yield in the year ahead. BGEO shares are very pricey at 2.4 times book value, but if Bank of Georgia continues to impress, this lofty valuation could make sense in the long term.

Cheap for a reason?

Meanwhile, shares of Barclays are still trading well below their tangible book value at 0.78. There’s good reason for this. Return on tangible equity (RoTE) reduced year-on-year in the first nine months of 2016, from 5.8% to 4.4%, as the £44bn of non-core bad assets ran up a staggering £1.4bn loss. While management is making progress in divesting these assets, it’s slow going and they will continue to be a drag on the overall group for some time to come.

On the bright side, core operations excluding exceptional items RoTE was a much better 10.7% in the period, driven by solid returns from the UK retail bank and stunning 21.3% RoTE from credit card operations. Unfortunately, fantastic returns from Barclaycard continue to be obscured by the billions of bad assets on the books as well as the massive transsatlantic investment bank whose RoTE in the period was a meagre 8.7%.

With billions of bad assets still to be sold, a management team clinging to an investment bank whose returns lag its cost of capital, a stubbornly high cost-to-income ratio of 73%, and dividends slashed, I’d bet on Barclays’ shares continuing to underperform BGEO’s in the coming years.

The post Can this tiny bank continue to outperform Barclays plc by over 150%? appeared first on The Motley Fool UK.

More reading

• How could the latest Barclays share buybacks impact investors?
• 2 bank shares to consider buying before Lloyds in May
• Where next for the Barclays share price, after Q1 fails to inspire?
• Barclays shares just fell 3% after Q1 results. Is this a buying opportunity?
• 2 stupidly cheap shares to consider buying now to try and make a million

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

And in this article, after doing the requisite research, I have unearthed 3 companies that I think are worthy of your attention. They are a broadcaster, a building materials company, and a bank. If you want to learn more, then read on….

Sky

Satellite broadcaster Sky (LSE: SKY) has grown to become Britain’s leading television company. It has done so by providing a variety and quality of programming that is second to none.

A belief that sophisticated consumers will be willing to pay more for a higher standard of television has been proved resoundingly to be correct. If you want the leading dramas, if you want Game of Thrones, Premier League football, test match cricket and golf majors, you have no choice but to buy into Sky’s product portfolio.

It has transformed the TV market in this country, and is an example of how to run a pay-tv firm which I think many other companies in other markets will try to copy.

A recent pull back in the share price has meant that it is now rated at a very reasonable 2016 P/E ratio of 15.06, with a dividend yield of 3.69%.

Travis Perkins

Travis Perkins (LSE: TPK) is a buildings materials and products distribution company that owns the Wickes DIY brand. And it is a business that has been growing steadily, with earnings per share expected to progress from 105.70p in 2013 to 148.80p in 2017.

With the building boom in this country going from strength to strength, Travis Perkins is set to gain and further increase its profitability. But the share price is off its highs, and is now attractively priced at a 2016 P/E ratio of 13.92, with a dividend yield of 2.68%.

That’s why I am optimistic about the prospects of this company, which combines profit and revenue growth with an increasing income.

BGEO Group

I have written several times about the investing merits of BGEO Group (LSE: BGEO), the financial services firm based in Georgia. It is the biggest bank in this Eastern European company, and the fact that it is listed on the London Stock Exchange means that investors can easily buy a stake in a leading emerging market business.

Why am I so interested in this company? Well, it is rapidly growing, with the eps expected to progress from 206.21p in 2013 to 375.48p in 2017. And yet it is very cheaply priced, with a 2016 P/E ratio of just 8.01, and a 3.18% dividend yield to boot.

Thus it exhibits a rare combination of value, growth and dividends which makes it, in my view, the ideal buy.

The post Has there ever been a better time to buy Sky plc, Travis Perkins plc & BGEO Group plc? appeared first on The Motley Fool UK.

More reading

• 2 bank shares to consider buying before Lloyds in May
• 2 stupidly cheap shares to consider buying now to try and make a million
• Up 887% with a P/E of just 8! Meet the eye-popping FTSE 100 bank that’s smashing Rolls-Royce
• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Looking for FTSE 100 bargain stocks? Check these out!

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More important for Tesco than this increase in overall sales was a slight bump in underlying operating margins, which in the UK rose from 1.1% to 1.2% year-on-year. This is far below the 5% margins Tesco regularly enjoyed only a few years ago, but it’s a step in the right direction. Unfortunately, I see little way for margins to return to this previous level thanks to the well-documented price wars brought on by no-frills and online-only competitors.

Furthermore, shares already trade at a pricey 20.9 times forward earnings, suggesting high amounts of growth are already priced-in. With few prospects for top-line growth, greatly reduced pricing power and £5.1bn in net debt on the books, I’ll still be steering clear of shares.

Long-term winner

Despite posting a 2% decline in revenue, consumer goods giant Unilever (LSE: ULVR) shares ended the week in the green. This was because the disappointing top-line performance was down to the strong euro relative to emerging market currencies, where Unilever brings in most of its sales. And, despite weakening emerging market economies, underlying sales increased 8.3% in developing markets and 4.7% overall.

This strong underlying growth despite a poor macroeconomic environment shows the strength of Unilever’s brand name goods. These brand names led to enviable core operating margins of 14.8% that should continue to improve as the company rolls out new cost-cutting measures in the months ahead. The bad news for investors thinking about buying shares is that the market prizes Unilever’s resilient business model and shares are priced at a full 22.5 times forward earnings. However, this quarter shows that Unilever can deliver to shareholders through thick and thin, which combined with a solid 3% yielding dividend is an attractive combination for long-term investors.

Power player

Last week’s results at BGEO Group (LSE: BGEO), the holding company for Bank of Georgia, blew the Tesco and Unilever figures out of the water. Revenue jumped up a full 38% as deposits increased 43% and the loan book expanded 20% at the bank. Unlike the UK’s largest banks, Bank of Georgia has been posting steadily growing profits for several years now thanks to return-on-equity of 21.7%, which is leaps and bounds ahead of the likes of Barclays or even Lloyds.

Of course, investing in a Georgian bank’s holding company with investments ranging from healthcare to renewable energy isn’t without its risks. Despite this, I believe BGEO has higher potential growth than either of Tesco or Unilever. The banking arm continues to grow its relatively low-risk retail business while maintaining low costs and a healthy capital buffer. The smaller investment arm has also done well, with profits increasing 81% over the past year. Altogether, an efficiently run business, high growth prospects, 3.6 % yielding dividend and low 7.6 forward P/E ratio make BGEO an appealing option to me.     

The post Is It Time To Buy After Last Week’s Results At Tesco Plc, Unilever Plc & BGEO Group Plc? appeared first on The Motley Fool UK.

More reading

• Are Unilever shares the perfect ISA buy for troubled times after Q1 impresses?
• 2 bank shares to consider buying before Lloyds in May
• £20,000 invested in Tesco shares 3 years ago is now worth…
• 2 stupidly cheap shares to consider buying now to try and make a million
• 5 years ago £10k bought 4,484 Tesco shares. How many would it buy today?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

First and foremost, it must be said that investing in a Georgian bank may not be for every investor, but the country is growing quickly, thoroughly Western-oriented and scores well on nearly every global ranking of business friendliness. Bank of Georgia, the largest bank in the country, has taken advantage of rapid economic development and boosted revenues by 36% and earnings per share by 18% over the past year alone.

Alongside capturing the largest share of a fast-growing market, the company has focused assiduously on keeping operating costs low. The bank’s cost/income ratio is a very low 35.7%, and this number has improved by 13.5% since going public in 2012. This led to return on equity (RoE), a key metric for bank performance, of an astounding 21.7% in the past year.

As revenue has risen dramatically, the company has returned significant cash to shareholders. Full year 2015 dividends have yet to be finalised but management expects them to yield a solid 3.6%, which will be covered more than three times by earnings.

All this good news has been well received by investors, and shares trade at a 1.28 price/book ratio, showing investors have already priced-in significant growth in the future. However, I believe for more risk-tolerant investors BGEO may offer higher, and more likely, growth prospects than many of the largest UK banks.

Big questions for Barclays

As BGEO has been on the upswing, Barclays (LSE: BARC) has been stuck in the doldrums for the past eight years. Although new CEO Jes Staley is moving to rein-in high costs and shift the bank’s focus to core sectors, the market hasn’t responded positively.

Staley’s plan to sell the bank’s sprawling African operations is a wise one, but it may not be enough to return the bank to the level of profits it once brought in. This is largely due to the fact that management is keeping the underperforming investment bank. This division, largely a legacy of the Lehman Brothers purchase in 2008, has a very low RoE of 5.6%.

This compares to solid RoEs of 17.7% for the credit card arm and 12.1% for retail banking. The question then becomes why management is intent on retaining an expensive, low profit investment bank that brings in lower returns with higher risk than other divisions. With share prices off 35% since Staley was announced as the new CEO, some in the City obviously share these and other concerns.

A price/book ratio of 0.43 could be interpreted one of two ways. A positive view would be that there’s significant growth possible for shares. A more negative view is that shareholders would be better off if the bank were broken up and assets returned to shareholders. While this may be a bridge too far, I do believe that until the underperforming investment bank is finally cut loose, share prices will continue to flounder.

The post Is £700m Market Cap BGEO Group Plc A Better Buy Than £27bn Barclays Plc? appeared first on The Motley Fool UK.

More reading

• How could the latest Barclays share buybacks impact investors?
• 2 bank shares to consider buying before Lloyds in May
• Where next for the Barclays share price, after Q1 fails to inspire?
• Barclays shares just fell 3% after Q1 results. Is this a buying opportunity?
• 2 stupidly cheap shares to consider buying now to try and make a million

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Lloyds Banking Group

Ever since the Great Recession, Britain’s banks have taken a battering. A combination of bad debts, low interest rates and immeasureable reputational damage has laid banking profitability, and thus banking share prices, low for these past eight years.

If you want to invest in a company like Lloyds (LSE: LLOY) then you have to be prepared to be in it come thick or thin. I see an investment in this firm as one you should keep tucked away for a decade or more. This should be no short-term trade.

There are plenty of reasons to invest in lloyds. Just look at its strengths: it encompasses the leading mortgage provider in this country, and it’s one of the leading current account providers and business banks in the UK.

But there’s a catch. You see, the question is when will these strengths overcome the debilitating effect of the PPI fines that have hit it hard and the effect of suffocating regulation? I’m not yet convinced that they will.

BGEO Group

Contrast this with BGEO Group (LSE: BGEO), formerly known as Bank of Georgia. This is an emerging market bank that has been completely clear of the troubles that Lloyds knows only too well.

Lloyds investors can only dream about the banking conditions prevalent in Georgia. Interest rates here are not 0.5%, but 8%. GDP growth is running at about 5%. This is a booming emerging market nation, and BGEO is its leading financial institution.

Yet this company is cheap. A predicted 2016 P/E ratio of 6.63 falls to just 5.64 in 2017. A predicted dividend yield of 4.42% in 2016 rises to 5.64% in 2017. That’s remarkable value, and yet this is a growing business. Just look at earnings per share, which are expected to advance from 206p in 2013 to 343p in 2017.

There are no PPI or money-laundering fines. There are no bad debts accumulated from the Great Recession. This is both an income share, and a growth investment. As such, I see this as a stonking buy.

Foolish bottom line

To some extent, the dilemma we face in this matchup mirrors the dilemma investors face in whether to buy into the established markets of the UK, Europe and the US, or the emerging markets of Eastern Europe, Africa, Latin America and Asia.

But, for me, there’s no contest. I would pick BGEO Group over Lloyds.

The post Head To Head: Lloyds Banking Group plc vs BGEO plc appeared first on The Motley Fool UK.

More reading

• As the Lloyds share price falls while profits rise, is it time to dump?
• How much is needed in an ISA for an annual income equal to this year’s £12,547 State Pension?
• What next for Lloyds shares after better-than-expected Q1 results?
• 2 bank shares to consider buying before Lloyds in May
• 2 stupidly cheap shares to consider buying now to try and make a million

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A key reason for its recent challenges is, of course, the prospect of a slowing China. As a key market for the bank, a reduction in Chinese growth is likely to have a negative impact on its earnings, although the world’s second-largest economy continues to have stunning long term potential for financial services companies such as HSBC. Putting this to side, though, HSBC has also allowed its costs to become too high at a time when its rivals have trimmed staff and reduced costs, thereby improving their cost:income ratios.

HSBC, though, is responding to having its highest ever operating costs. It is introducing a number of cost saving methods including a 25,000 reduction in staff numbers and this is set to stimulate its earnings growth over the medium term. With the company’s shares trading on a price to earnings (P/E) ratio of just 10.3, there is plenty of scope for an upward rerating. And, with a yield of 6.2% added to this, a return of 20% seems easily achievable over the medium term.

Similarly, challenger bank Shawbrook (LSE: SHAW) also appears to offer a relatively wide margin of safety. For example, it has a price to earnings growth (PEG) ratio of only 0.4 since it is forecast to increase its bottom line by 38% in the current year and by a further 30% next year.

Clearly, there are concerns among a number of investors regarding the future for challenger banks and the potential for a regulatory clampdown on buy-to-let mortgages. That’s partly because of pressure from first-time buyers regarding house prices, but also because of concerns that as interest rates rise there is a risk that buy-to-let mortgagees will no longer be able to cover their debt servicing costs. This, it is feared, could put pressure on the UK’s economic recovery.

However, with the UK economy continuing to move from strength to strength and a loose monetary policy likely to remain in place during the coming years, demand for new loans from businesses and individuals is likely to remain high. Therefore, buying Shawbrook now seems likely to yield a return of over 20%.

Meanwhile, Bank of Georgia (LSE: BGEO) has today released an upbeat trading statement for the third quarter of the year. In fact, pretax profit increased by 24% versus the same quarter of last year, with the bank stating that it is well-positioned to post upbeat full-year results. That’s despite a volatile economic backdrop as well as a weaker currency.

Looking ahead to next year, Bank of Georgia is expected to increase its net profit by 22% and this puts it on a PEG ratio of just 0.3. As such, an upward rerating is very much on the cards if it can maintain its impressive rate of progress, while a yield of 4.6% should mean that the stock’s total return exceeds 20% over the medium term. Therefore, while lacking the regional diversification of many of its sector peers, it appears to be worth buying at the present time.

The post Are HSBC Holdings plc, Shawbrook Group PLC & Bank Of Georgia Holdings PLC Capable Of 20% Returns? appeared first on The Motley Fool UK.

More reading

• 2 bank shares to consider buying before Lloyds in May
• £15,240 saved in a Cash ISA in 2016 is now worth…
• 2 stupidly cheap shares to consider buying now to try and make a million
• How much would an ISA need to double the State Pension and target £25,094 a year?
• Here’s how the HSBC share price reached an all-time high… and what might be next

Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in HSBC (LSE: HSBA) have one of the lowest valuation multiples in the large-cap banking sector in the UK, with a 7% discount to its tangible book value. Profitability has been steadily improving for the bank, but HSBC still faces major structural and cyclical headwinds in the near term.

Slowing emerging market economies pose a very real risk to its earnings in a number of ways, as slowing growth usually leads to slower lending and lowers the credit quality of its loans. In addition, the tumbling value of many emerging market currencies means HSBC will take a hit when it translates its foreign profits back into dollars, its reporting currency.

On the structural side, the bank faces increasing regulatory scrutiny, causing it to carry more capital and incur more compliance costs than many of its smaller competitors. Its cost to income ratio remains stubbornly high, at 58.2% for the first half of 2015, and it seems unlikely that it could sustain a mid-50s figure for the full year.

However, analysts are still optimistic with earnings over the next two years. They currently expect underlying EPS will rise 16% to 52.2p in 2015, which gives its shares a forward P/E of 10.1. For 2016, underlying EPS should grow by another 2% to 53.0 pence, and this will mean its forward P/E of earnings in the following year will fall to just 10.0.

RBS

Royal Bank of Scotland Group‘s (LSE: RBS) 25% price-to-tangible book discount may make the bank seem cheaper than HSBC, but this is down to its much weaker profitability and uncertainty about the market value of the assets on its balance sheet. The bank is making progress with cutting costs, but investors should expect a long ride before profitability returns to ‘normal’ levels.

Restructuring costs continue to mount, and the bank needs to accelerate the sale of its under-performing assets. The prospect of further fines seems never ending, and the bank’s £5.4 billion litigation provision may not fully reflect the potential costs.

Its shares may trade at 11.8 times its expected underlying earnings in 2015, but earnings is expected to be volatile. Analysts expect underlying earnings will fall again, by 11% in 2016, which implies its share trade at 13.9 times its earnings in 2016.

Bank of Georgia Holdings

Bank of Georgia Holdings (LSE: BGEO) is growing strongly, despite Georgia’s close economic ties with Russia and the depreciation of the Georgian lari. Unfortunately, there are also signs that trading conditions could get a lot worse.

Bank of Georgia’s non-performing loans ratio rose substantially in its most recent quarter, rising 60 basis points on the previous quarter, to 4.1%. Credit quality could worsen further, and improvements in margins and cost efficiency seems unsustainable. Underlying earnings is set to fall 12% this year, to 203.4p, which implies its shares trade at a forward P/E of 9.3.

The bank is set to benefit from the anticipated IPO of its healthcare subsidiary, Georgia Healthcare. This could prove to be a very positive near term catalyst for the bank, as the timing of the listing is unlikely to get much better. Valuations for healthcare stocks carry a premium to the market, and the listing could raise some much needed funding for the bank’s growth plans and shore up its balance sheet.

Conclusion

All three banks will likely face some major headwinds, but HSBC is most attractive of the three because it has the most optimistic outlook on earnings growth. And, although HSBC is not the cheapest bank on valuations, it has the highest dividend yield in the sector, at 6.1%.

The post Is HSBC Holdings plc A Better Buy Than Royal Bank of Scotland Group plc & Bank of Georgia Holdings plc? appeared first on The Motley Fool UK.

More reading

• How much is needed in a SIPP to target a £25,095.20 annual income
• 2 bank shares to consider buying before Lloyds in May
• £15,240 saved in a Cash ISA in 2016 is now worth…
• 2 stupidly cheap shares to consider buying now to try and make a million
• How much would an ISA need to double the State Pension and target £25,094 a year?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.