Stock Analysis & Ideas

Barclays or Lloyds: which banking stock will continue its dividend run?

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Banks are facing another period of uncertainty: how will British banking icons Lloyds and Barclays weather an expected recession?

We have used the TipRanks’ Comparison tool to have a closer look and compared two banking stocks in the UK. Lloyds Banking (GB:LLOY) and Barclays (GB:BARC) are the two banks that are part of ‘the big four banks’.

The UK banking sector is facing a double-edged sword thanks to an uncertain economic outlook under the impact of inflation.

With recession looming, consumer spending will be reduced. As a result, the banking sector will be hit by lower demand for loans and credit cards – and concerns over bad debts.

But rising interest rates mean better net interest margins for banks.


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Let’s see the stocks in detail.

Lloyds Banking: Slightly risky affair

Lloyds Bank operates in three segments: retail, commercial, insurance, and wealth. It is also the biggest mortgage lender in the UK, with a market share of 20%.

As home prices reach record highs and demand returns to pre-pandemic levels, this has proved to be a tailwind for the bank.

However, housing demand is expected to slow down in the medium term. This will impact Lloyds more than its competitors.

Lloyds is a leading retail bank in the UK and enjoys huge consumer loyalty. The bank, on the other hand, lacks expertise in wealth management and capital market services. This is another headwind for the bank in a time when retail banking is hit by the cost of living crisis.

Lloyds Banking Group CEO, Charlie Nunn warned, “75% of its customers are worried about the cost-of-living crisis and the vast majority of its customers have little in their accounts to act as a buffer.”

This makes investors worried about the continuity of their dividends, resulting in shaky share prices.

The stock is down by 11.7% YTD.

View from the city

According to TipRanks’ analyst rating consensus, Lloyds’ stock has a Moderate Buy rating based on 11 analyst ratings. It has seven Buy, three Hold, and one sell recommendations.

The average Lloyds price target is 59.3p, which is 35% higher than the current price. The stock price has a high forecast of 97p and a low forecast of 42p.

Barclays Bank: On track with dividends

As compared to Lloyds, Barclays has more exposure to wealth management and investment banking services globally.

This diversification provides cushioning for the bank in uncertain times. The company’s focus on global markets and commercial banking will make it flexible in the recession, and investors can expect stable returns.

Barclays has always been a company that understands the importance of passing returns to its shareholders. For the full year 2021, the dividend was 4.0p, which gives it a yield of 3.9%.

The bank also announced its intention to start a share buy-back of up to £1 Billion in the second quarter of 2022.

Barclays has a dividend cover of 5.54, which indicates that its dividends are sustainable. Also, the bank’s dividend growth is attractive as it has increased its dividends three times over the last 10 years.

View from the City

According to TipRanks’ analyst rating consensus, Barclays’ stock has a Moderate Buy rating. The rating is based on nine Buy, and four Hold recommendations.

The average Barclays price target is 247.4p, with an upside potential of 56%. The high and low forecasts for the price are 369p and 180p, respectively.

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The banks came out of the COVID downturn only to face another potential recession. Raising interest rates will allow banks to widen their net interest margin, which will offer some breathing room.

For Lloyds, the headwinds such as a slowdown in the housing market and reduced retail activity are temporary. The stock is good for a long-term horizon.

Barclays is in a more comfortable bet because of its diversified portfolio and progressive dividend policy.


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