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I do not have unlimited cash reserves that I can use to buy UK shares.so i’m looking for the best cheap FTSE100 Stocks to buy today.
Should you add these two undervalued dividend stocks to your investment portfolio?
Lloyds Bank Group
at 5.4% lloyds bank (LSE: Roy) stock yields well above the FTSE 100 average of 3.9%. Despite this, I don’t see this business as an attractive way to increase my income.
The profits these companies make are highly dependent on broader economic conditions. Loan defaults could soar, as UK banks witnessed last year (Lloyd’s credit impairment surged to £1.5bn in 2022). It can be an intense struggle.
There are two problems with this particular bank. The UK economy is likely to experience a prolonged period of weak GDP growth due to severe structural problems such as labor shortages, weak private and public investment, declining productivity and Brexit-related trade disruptions.
And unfortunately, Lloyd’s is not exposed to foreign climates to offset possible weaknesses at home. HSBC (LSE: HSBA) and Santander,By comparison, You can accelerate your profits by looking at fast-growing Asia and Latin America respectively. barclays Investors can expect the company’s U.S. operations to boost earnings.
We also note that unfavorable interest rate movements could disappoint Lloyd’s earnings.
The Bank of England (BoE) may continue to tighten policy to counter persistent inflation. This further increases the margin between the interest they charge borrowers and the interest they provide to savers, boosting profits in the process.
But comments from key policymakers in recent weeks cast doubt on any further monetary tightening. Just today, her Swati Dhingra, the BoE’s interest rate setter, called for interest rates to be pegged at her current level of 4%.
These long-term threats mean I want to avoid Lloyd’s stock. Price Earnings Ratio (P/E) 7.5 times is enough to make me want to invest.
The aforementioned HSBC is the better way for me to invest in the London banking sector. This business certainly offers good value for money compared to Lloyd’s stock, at least on paper.
The Asian banking giant trades at 6x futures P/E. The 2022 dividend yield is 8.1%. But better value isn’t the only reason.
It is true that HSBC itself also faces significant risks. Lower-than-expected interest rates would also undermine profits from lending activities. In addition to this, uncertainty surrounds key Chinese markets and neighborhoods as the Covid-19 crisis continues.
However, as a long-term investor, I am happy to absorb these risks. That’s because I believe the ultimate return this stock could deliver could be spectacular as emerging market demand for financial services soars. Banking product penetration remains very low and personal wealth levels have risen significantly.
HSBC will serve a whopping 39 million customers in 2022. We expect that number to continue to surge as the banking market swells and companies invest billions of dollars to expand.
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