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UK banking is dominated by the ‘Big Four’ banks. These are barclays (LSE: BARC), HSBC holdings (LSE: HSBC), Lloyds Banking Group (LSE: LLOY), and NatWest Group (LSE: NWG). But what bank stocks look like bargains to me today?
Big Four Bank Stock
1.Barclays
My wife owns Barclays shares. They are currently trading at 173.28 pence, valuing Blue Eagle Bank at £27.5bn. This stock reached a maximum of 202.35p in the last 12 months, while it has lost 11.6% in the last year.
Today, I view Barclays shares as an incredible bargain. They are trading with a price-earnings ratio of 5.8 and an earnings yield of 17.2%. This is approximately 10 percentage points above the FTSE 100earnings yield of .
Also, Barclays shares offer a dividend yield of 4.2%, covered 4.1 times by earnings. This is one of the strongest ratios on Footsie, which makes this payout a solid one for me. So if I had any extra money, I would eagerly buy more Barclays shares today.
2.HSBC
At the current share price of 630.1 pence, global megabank HSBC is valued at £125bn. The stock is up 15% in the past year. In addition, its shares hit a 52-week high of 653.8 pence on Tuesday, following strong results all year.
However, HSBC shares don’t look so cheap to me right now. They are trading with a price-earnings ratio of 10.2 and an earnings yield of 9.8%. That is well below Barclays figures.
Also, while HSBC shares offer a dividend yield of 4.3% per annum, this is covered only 2.3 times by earnings. That’s about half the payment coverage at Barclays.
Also, HSBC has a large exposure to Hong Kong and China, which worries me as US-China relations deteriorate. Therefore, I do not own these shares now and I will not buy them yet.
3.Lloyd’s
We bought Lloyds shares for our new family portfolio last year. So far, they are our second best performer. At the current share price of 52.1p, Lloyds is valued at £35.1bn. Its shares have lost just 0.2% in the past 12 months.
After Barclays, Lloyds would be my second choice for bank stocks right now. Its shares trade with a price-earnings ratio of 7.2 and an earnings yield of 13.8%. Pretty undemanding, I feel.
In addition, Lloyds’ dividend yield of 4.6% per annum is covered three times by earnings. And that’s why we could increase our stake in Lloyds after April 6 (the new tax year). Lloyds may seem like a value trap, but I like my odds.
4.Nat West
The latest is NatWest, formerly Royal Bank of Scotland. With a share of 286.4 pa, this bank is valued at £27.7 billion. Its shares are up 11.3% in a year.
Once again, NatWest shares look cheap, but not as cheap as Barclays or Lloyds. They have a price-earnings ratio of 7.9 and a return on earnings of 12.7%. Meanwhile, its dividend yield of 4.8% per year is covered 2.6 times by earnings.
If I was forced to add some brand new bank stocks to my collection, I’d pick NatWest over HSBC.
Finally, bank stocks can be volatile, especially as the UK heads into recession. So owning these shares could be painful for the next 12 months. But I’ll keep mine for your long-term dividend income and capital gains!
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