Being focused on the domestic market has caused some problems for the bank, with the uncertainty in respect of Brexit causing particular pain. Add larger than expected PPI claims into the mix, and it’s easy to see why the share price has dipped.

I have real concerns with Lloyd’s. Although macroeconomic woes are not isolated to the UK, from a banking stock I would rather have the benefit of international diversity. In addition, the industry is under threat from new entrants like Revolut, which could disrupt and turn the banking world on its head.

The FTSE 100 company is trading at a price-to-earnings ratio of 10, and has a prospective dividend yield of 5%.

This might get some investors excited and tempt them to buy shares in Lloyd’s, but I’ve found a FTSE 250 stock that offers a lower P/E ratio and higher dividend.

Marston’s

Marston’s (LSE: MARS) latest results are due to be released on 27 November. I have a suspicion that there could be reasons for investors to pop the fizz.

As it stands, the pub operator and independent brewers P/E ratio is 9, and its prospective dividend yield is an impressive 6%.

In the previous six months, its price has surged by 20%, in part because of the takeover of rival Greene King by CKA.

Going forward, the company is focused on reducing its debt pile. This is encouraging and I believe it will be fundamental to Marston’s success.

The brewer hopes to accelerate a stated debt reduction target of £200m by 2023 through the disposal of non-core assets. In an update released in October, it increased its disposals guidance from £40m to £70m in 2020. In November, it announced it had reached an agreement for the disposal of 137 pubs to Admiral Taverns for £44.9m.

CEO Ralph Findlay believes these measures will mean that Marston’s will thereafter be “operating a high-quality business generating consistent net cash flow, after dividends, of at least £50m per annum.”

With an estate of over 1,500 pubs nationally, comprising managed, franchised, and leased pubs, it’s easy to imagine that there is room to carry out a disposal exercise.

There is further encouragement for investors in the sales numbers. Total pub sales for the year increased by 3%, with like-for-like sales growth of 0.8%. Most exciting, however, is that in the final 10 weeks of the financial year, like-for-like sales were up 1.9%. Hopefully, this continues onwards throughout the festive season.

Growth investors should probably look elsewhere. But for dividend hunters, I would be encouraged by the disposal program, which will hopefully mean Marston’s have the strength to continue with its generous payout in the long-term.

In a struggling leisure industry, I think Marston’s could make up one of the stand-out shares.

The post Forget Lloyd’s! I’d buy this FTSE 250 dividend share instead appeared first on The Motley Fool UK.

From looking like a solid-if-unspectacular profits creator, Lloyds’ top line now faces an uncertain future, as Britain’s decision to exit the European Union threatens to derail the domestic economy. And the Black Horse bank’s lack of any sizeable international presence leaves it without an outlet to offset these possible home troubles.

Sure, the UK economy may have remained resilient in the immediate aftermath of the summer’s vote. But signs of cooling retail spending, moderating business investment, and an erosion in services PMI (responsible for around two-thirds of British GDP) since the turn of the year all suggest that conditions are becoming tougher.

This trend could well continue, with the triggering of Article 50 set to unleash many months of economic turbulence.

Pillow talk

Unlike Lloyds, however, I believe accommodation specialist InterContinental Hotels Group (LSE: IHG) is in great shape to enjoy resplendent earnings growth in the years ahead.

InterContinental Hotels saw underlying revenues advance 4.6% during 2016, to $1.58bn, a result that powered underlying operating profit 9.5% higher to $702m.

And the company sees plenty of scope for traveller numbers to keep pounding higher. InterContinental Hotels added 76,000 rooms to its pipeline last year, the largest number since 2008. A total of 230,000 of new rooms as of the close of last year represented an 8% year-on-year rise.

And the beds behemoth sees huge sales potential across the globe. In the US InterContinental Hotels saw revenues per available room (or RevPAR) increase 1.8% in 2016. I fully expect this to continue to increase as growth in the world’s largest economy clicks through the gears.

Looking further afield, while economic turbulence in the Middle East continues to be troublesome for the business, excluding this territory RevPAR in the Africa, Middle East and Asia (AMEA) region grew 3.8% last year, led by India, where revenues per room grew 14.1%.

InterContinental Hotels opened 4,000 new rooms in AMEA in 2016 alone to help it profit from the terrific long-term potential of these geographies.

Hot hot hot

I believe that international markets should also allow Wolseley (LSE: WOS) to generate serious earnings expansion in the years ahead.

The plumber this week announced plans to change its name to Ferguson, to reflect the massive earnings success of its US division. Chief executive John Martin commented that “Ferguson now accounts for 84% of Group trading profit and we have decided to align the Group’s name with our most significant brand in our largest market.”

US revenues grew 9.9% at constant currencies in 2016, to £5.76m, and the top line should keep on rising as construction rates Stateside pick up the pace. By comparison sales in the UK and Canada & Central Europe rose a more modest 1.5% and 1.6% respectively last year.

Furthermore, with Wolseley having decided to unshackle itself from Scandinavia by selling its Nordics business —  sales at constant exchange rates here fell 0.7% year-on-year in 2016 — I reckon the business is in great shape to deliver excellent profits growth long into the future.

The post 2 FTSE 100 stocks with brighter growth potential than Lloyds Banking Group plc appeared first on The Motley Fool UK.

Although they both have large market capitalisations, neither firm produces much added value to their product offerings. We could go to Lloyds Banking Group for a bank account or a loan, but we might as well go to any banking company. Similarly we could buy petrol or oil from any producer and it would be much the same as BP’s.

Cyclically challenged

These giants might feel like safe investments because of their size, but their longer-term share price charts — say, over 10 years — tell a story of disappointed investors.

Perhaps now, with the shares weak, Lloyds Banking Group and BP look attractive as cyclical bets on the next macro-economic up-leg. Maybe. But there are better cyclical options on the stock market down the rankings, with the smaller market capitalisations.

Rather than buying shares in cyclical monoliths with undifferentiated products, maybe it’s better to look for a firm that adds more value to its final product. That’s why I’m looking at power control components manufacturer XP Power (LSE: XPP).

Making stuff work

The firm makes power control solutions for electronic equipment. A lot of equipment doesn’t work from mains power with its high voltage and alternating current. So, XP Power is part of the industry that makes circuit boards featuring power converter components.

The circuitry changes the characteristics of the power from the mains into a form suitable for the electronic equipment being supplied — perhaps by changing the voltage, or changing the current from alternating to direct, or any combination that is required for the equipment.

XP Power’s products are an important cog in the electrical equipment industry. The firm gets involved in making power solutions for equipment areas such as factory automation projects, automated testing, industrial control, test and measurement, instrumentation,  hazardous environments, semiconductor production, audio visual broadcasting, mobile & wireless communications, computing & data processing, and a range of medical applications.

XP Power serves a range of industries internationally, but the firm operates in a competitive market. The directors reckon the global power converter market is highly fragmented and made up of hundreds of thousands of customers. XP Power competes with around fifty manufacturers of power solutions capable of operating on a worldwide basis.

Doing something right

Despite the competition, today’s interim results show that XP Power has carved out a profitable niche for itself in the industry. The order book rose almost 11% on the year-ago figure, revenue increased more than 7% and the operating margin came in around flat at just under 24%.

The chairman reckons orders, revenues and profit before tax for the first six months of 2015 all set new records, while the firm grew its engineering and sales resources to help drive future growth.  He thinks the company’s strong order book should drive further revenue growth for the rest of 2015, because designs won last year will enter their production phase.

A typical customer for XP Power is an original equipment manufacturer (OEM) characterised as having expertise in their particular area, whether it be medical devices, communications or industrial automation, but unlikely to have in-house power supply expertise. XP Power, therefore, provides the necessary expertise and assists its customers to design suitable power supplies from an extensive range of products that meet the customer’s cost and technical requirements.

Such personal and bespoke service strikes me as the key to XP Power’s niche position in the market. My guess is that OEMs might be reluctant to turn their backs on a business relationship nurtured over years to save a few pounds here and there. Sometimes, the outcome of such flighty buying behaviour can be disastrous if a replacement provider fails to satisfy — a small potential saving can end up becoming a large additional cost. With XP Power’s product so critical to a project, customer loyalty could manifest as increased profitability and cash-flow reliability for XP Power.

Added value

At a share price of 1,602p, the firm’s forward dividend yield runs at 4.4% for 2016 and the price-to-earnings ratio at just over 14. City analysts following the firm expect an 8% uplift in earnings per share that year.

There’s no doubt that XP Power’s business is cyclical, too. However, the value the firm adds to its product offering could drive the company to outperform total returns from undifferentiated cyclicals such as Lloyds Banking Group and BP.

The post Why XP Power Limited Might Outperform Lloyds Banking Group plc and BP plc appeared first on The Motley Fool UK.

And there are a number of catalysts on the horizon that could power Lloyds’ shares higher over the next few months to the key level of 100p per share.

Three key catalysts

There are three key catalysts that could positively affect Lloyds’ share price over the next six months.

First off, as the government sells off its remaining stake in the lender, Lloyds’ shares should head higher as liquidity increases, a large seller leaves the market and government influence over the bank dissipates. 

Secondly, Lloyds’ growing earnings, strong balance sheet, dividend yield and sector-leading performance metrics, all point to the fact that Lloyds is undervalued at present levels. 

For example, as I’ve covered before, a number of analysts now consider Lloyds to be one of the best run banks in Europe with a return-on-equity target of 13.5% to 15%. In comparison, many of Lloyds’ larger peers have long-term ROE targets in the low teens. But despite this sector-leading target, Lloyds is currently trading at a forward P/E of 10.4. Analysts believe the bank will offer a yield of 4.7% during 2016. 

Improving economy

A third catalyst that could drive Lloyds’ shares higher is the improving UK economy and the prospect of higher interest rates as a result. 

Indeed, last week Bank of England governor Mark Carney indicated that interest rates could go up at the turn of the year. And a higher interest rate would be great news for Lloyds as the bank’s net interest margin is linked to the Bank of England’s base rate.

Simply put, the net interest margin is a measure of the difference between the interest income generated by banks and the amount of interest paid out to borrowers, relative to the amount of their interest-earning assets. As a result, the wider the net interest margin, the more interest income that’s generated by banks.

With interest rates set to head higher, Lloyds’ net interest margin will grow, which will, in turn, boost the bank’s net income and City estimates for growth. 

Will head higher

All of the above factors point to the fact that Lloyds’ shares are more likely to head higher than lower over the next six to twelve months.

What’s more, considering the fact that Lloyds’ closest UK peers, Barclays, HSBC and RBS trade at an average forward P/E of 12.1, Lloyds certainly deserves to trade at a higher multiple. Lloyds’ shares would be worth 99.2p if the bank’s forward P/E moved in line with its UK peers. 

But don’t just take my word for it. I strongly recommend that you do your own research before making a trading decision — you may come to a different conclusion.

The post Why Lloyds Banking Group PLC Could Hit 100p By The End Of The Year! appeared first on The Motley Fool UK.

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Severn Trent (LSE: SVT) did recently take a decision to rebase its dividend by 5% after accepting regulator Ofwat’s parameters for the next five years, but serious dividend shocks from utilities are virtually unknown.

Severn Trent today released the kind of trading update that shareholders enjoy: dull and predictable. “There has been no material change to business performance or outlook since the Preliminary Results on 22 May 2015”, the company said. Just the ticket!

The Board also reaffirmed its commitment to pay an 80.66p a share dividend for the company’s financial year ending March 2016. Severn Trent offers a 3.7% yield, and, with management’s policy being to increase the dividend annually by no less than RPI inflation until 2020, the company appears — on the face of it — to be a more attractive income stock than Lloyds (LSE: LLOY) (NYSE: LYG.US).

Lloyds has only recently paid a first dividend since the financial crisis — and that a token 0.75p payout, giving a yield of less than 1%. Even though analysts forecast a healthy rise to 2.75p for the current year, the resulting yield of 3.2% is still lower than Severn Trent’s 3.7%.

However, looking beyond the immediate yields, there are good reasons to believe that Lloyds’ future dividend payments could surpass National Grid’s. And that, in the longer term, investors today could receive a higher income from buying shares in the bank than from taking a stake in the water company.

When it announced its first token dividend earlier this year, Lloyds said its aim is to have a progressive dividend policy, “increasing over the medium term to a dividend payout ratio of at least 50% of sustainable earnings”.

The forecast 2.75p dividend (3.2% yield) I mentioned earlier, represents a payout ratio of just 33% — showing how much scope Lloyds has to lift its dividend higher, compared with Severn Trent, which has a 93% payout ratio.

Analysts expect only a modest uplift in Severn Trent’s dividend next year to give a yield of 3.8%, but they expect Lloyds to lift its payout ratio close to 50% — sending its yield galloping past Severn Trent’s at 4.9%.

In time, Lloyds could lift its payout ratio higher still; perhaps as high as 65%. That’s because Lloyds is well on the way to positioning itself as a UK-focused, low-risk traditional lender. Banking is really a very simple and effective business when run on prudent principles, and the Black Horse’s most recent quarterly results show how profitable such a business can be, without the extraordinary risks and excesses that banks indulged in before the financial crisis.

Many analysts now believe that Lloyds will have billions in surplus cash as early as next year, which could be distributed to shareholders as a special dividend or used for value-enhancing share buybacks.

So, while utilities such as Severn Trent will remain popular picks for income investors — and certainly have a place in a diversified portfolio — Lloyds could prove to be a top-notch dividend choice, based its prospects for cash distribution, both in the near term and for many years to come.

The post Why Lloyds Banking Group PLC Could Be A Better Dividend Choice Than Severn Trent Plc appeared first on The Motley Fool UK.

JD Wetherspoon

Booze behemoth Wetherspoons (LSE: JDW) worried the market in midweek business and was recently dealing 7.1% lower from Tuesday’s close. In its latest trading statement the Watford firm advised that “the recent government announcement regarding the ‘living wage’ adds considerable uncertainty to future financial projections in the pub industry”, adding to the considerable pressure on margins as the sector battles competition from supermarkets.

While investors should of course be taking Wetherspoons’ warning extremely seriously, I believe that the business still offers brilliant potential. The company is investing huge amounts into expanding its pub portfolio while also shuttering many of its underperforming outlets, a programme that helped propel total sales 6.5% higher during May-July. And Wetherspoons plans to open another 20-30 pubs next year, driving the number of its pubs to within a whisker of the magic 1,000 marker.

Accordingly the City expects earnings growth of 1% for the year concluding July 2015 to accelerate to 12% the following year, driving a P/E multiple of 15.6 times for the current period to just 14 times — any reading around or below 15 times is widely considered sterling value. And predicted dividends of 12.1p and 12.5p per share for 2015 and 2016 correspondingly create decent-if-hardly-barnstorming yields of 1.6% and 1.7% correspondingly.

E2V Technologies

Unlike Wetherspoons, semiconductor and imaging tech builder E2V Technologies (LSE: E2V) lit up the market in Wednesday’s session and was last dealing 1.3% higher on the day. The business advised in its latest update that despite witnessing ‘modest revenue growth‘ during April-June, caused by order weakness at its semiconductor arm, its full-year guidance remains unchanged.

Indeed, the Essex firm has previously laid out its intention to double EBIT by 2020, a goal that is likely to be underpinned by resplendent growth at its Space division. With ongoing restructuring at the firm also bolstering the bottom line, the City is in broad agreement that earnings are on an upward trajectory, and have pencilled in rises to the tune of 4% and 8% for the years ending March 2016 and 2017 respectively. As a result E2V Technologies boasts attractive P/E ratios of 16.1 times for this year and 15 times for 2017.

And these bubbly growth projections, allied with the impact of current restructuring on the company’s cash reserves, is expected to keep driving the dividend skywards, too. A projected payout of 5.1p per share last year is anticipated to advance to 5.4p in 2016, creating a yield of 2.3%, and to 5.8p in 2017, pushing the readout to 2.5%.

Lloyds Banking Group

Banking giant Lloyds (LSE: LLOY) (NYSE: LYG.US) has naturally enjoyed a share price bump after the Greek debt deal inked earlier this week, although advances have since pared back a bit and the firm was recently 0.1% higher on Wednesday. And I believe the stock is in great shape to continue rising as a buoyant British economy boosts demand from retail customers and business alike in the coming years.

Growth isn’t expected to take off at Lloyds in the near-term by any means — indeed, the City has pencilled in advances to the tune of just 1% and 2% in 2015 and 2016 respectively. However, it is hard to look past the terrific value these projections provide, with a P/E ratio of 10 times through to end-2016 smack on the barometer that represents excellent bang for one’s buck.

And this steadily-improving earnings picture, combined with the effects of massive restructuring on the balance sheet, is anticipated to drive dividends firmly higher in the years ahead. With Lloyds having got its payout policy back on track last year, the number crunchers now expect the banking giant to shell out rewards of 2.8p per share this year and 4.2p in 2016. Consequently a chunky 3.3% yield for 2015 leaps to a market-mashing 4.9% for next year.

The post Should You Buy JD Wetherspoon plc, E2V Technologies PLC And Lloyds Banking Group PLC? appeared first on The Motley Fool UK.

Of course, Lloyds has benefitted from the sale of the UK government’s stake, which has undoubtedly improved investor sentiment in the stock. That’s because it has shown that Lloyds is viable as a standalone entity and has the financial strength and financial performance to go it alone without taxpayer-backed funds. And, the central reason that has allowed the sale of the government’s stake is a superb strategy of de-risking the bank’s balance sheet while at the same time improving the efficiency and performance of its core business units.

A direct result of this has been a return to profitability and a profit outlook that is relatively encouraging. Yet, despite this, Lloyds continues to trade on a relatively low valuation, with evidence of this being offered by a dividend yield that, at its current share price, is set to hit 4.9% next year. As a result, it would be of little surprise for Lloyds to see its share price rise over the medium term, as investors seek to buy into its continued resurgence. Therefore, now seems to be a great time to buy a slice of it.

Also outperforming the FTSE 100 in the last five years is easyJet (LSE: EZJ). Its shares have risen by a hugely impressive 281% and, looking ahead, further growth looks set to be on the horizon. A key reason for this is a recovering global economy, with demand for passenger jet tickets continuing to increase and, alongside easyJet’s excellent strategy on business passengers, its future growth rate is set to drive the company’s share price higher.

In fact, easyJet is forecast to increase its bottom line by around 11% per annum over the next two years and, with its shares trading on a price to earnings (P/E) ratio of 13.2, it appears to offer significant scope for an upward rerating in 2015 and beyond.

Meanwhile, cruise ship operator, Carnival (LSE: CCL) (NYSE: CCL.US), has also beaten the FTSE 100 in the last five years. Its shares are up by 56% during that time and, looking ahead, its stunning earnings growth forecasts are likely to push its shares significantly higher. For example, Carnival’s bottom line is expected to rise by 60% in the current year, followed by 29% next year.

Clearly, that’s well ahead of the wider index’s growth rate and, despite this, Carnival trades on a price to earnings growth (PEG) ratio of just 0.6. This indicates that its shares offer growth at a very reasonable price and look set to continue the run over the last year that has seen them rise by a whopping 62%.

The post Is Now The Perfect Time To Buy Lloyds Banking Group PLC, easyJet plc And Carnival plc? appeared first on The Motley Fool UK.

Since 2011 the bank has bolstered its balance sheet, reinstated a dividend payout, slashed costs, exited unprofitable markets and seen return on equity (ROE) increase almost three-fold. 

Many now consider Lloyds to be one of the best-run large banks in Europe and on one metric at least the bank looks cheap, Lloyds is currently trading at a forward P/E of 10.1 and analysts believe the bank will offer a yield of 4.9% during 2016. 

So, in many respects Lloyds looks to be a great investment at first glance but is this really the case? 

Mixed emotions

When assessing Lloyds, many investors make the mistake that the bank should be compared to peers like Barclays, HSBC and RBS. However, Lloyds’ business model has changed drastically over the years, and it’s now difficult to compare the bank to any of its larger peers. 

For example, Lloyds no longer has a risky investment banking arm. The group is, for the most part, a retail bank and, as a result, income is more predictable. I’ve written about Lloyds’ new, simplified business model before; you can read about it here. 

Lloyds’ ROE is the best way of highlighting this fact. Specifically, Lloyds’ ROE hit 16% during the first quarter and management is targeting at long-term ROE of 13.5% to 15%. In comparison, many of Lloyds’ larger peers have long-term ROE targets in the low teens. 

Lloyds’ targets should be sustainable as, without a risky investment banking division, the bank’s income is more predictable. Investment banks are notoriously volatile operations.  

Low valuation 

After taking into account the fact that Lloyds has the ability to generate a stable, mid-teens ROE for the foreseeable future, it’s easy to conclude that that company should trade at a premium to its sector peers. 

And it does on an asset basis. Lloyds currently trades at a price to tangible book value of approximately 1.5. The European sector average is around 1.2 times tangible book.

However, on an earnings basis Lloyds trades at a discount to the wider European banking sector. As mentioned above Lloyds currently trades at a forward P/E of 10.1. The European banking sector average P/E sits in the mid-teens. 

Time to buy?

So overall, when you take into account Lloyds’ simplified business model, sector-leading ROE, a discount to its peers on an earnings basis and dividend growth potential, the company still looks undervalued.

That said, on an asset basis Lloyds does look expensive. But sometimes you have to pay extra for quality and this premium shouldn’t matter too much to long-term holders. 

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