Banking stocks have performed very well over the past year. Rising interest rates have helped to boost revenue for the major players, with H1 results showing some impressive profits. Two of the main competitors are Barclays (LSE:BARC) and Lloyds Banking Group (LSE:LLOY). In a traditional battle for my investment cash, which of the two should I pick right now?
The case for Lloyds
Lloyds has the largest UK retail client base out of the main banks. This can be seen as either a risk or an opportunity. In terms of the risk it offers, retail customers are very sensitive to how the economy performs. Individuals can quickly tighten their card spending, loan requests and other banking-related products.
However, I see the retail base as a reason why I’d want to buy Lloyds shares. The share price is up 7.9% over the past year, even with the UK economy stalling. This shows me that the benefit from higher interest rates can compensate for lower customer activity during this period. Then, when a recovery comes along and with it a boom period, Lloyds should be able to outperform based on the retail client base.
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Another reason why I rate Lloyds over Barclays is due to the dividend yield. At the moment Lloyds has a higher yield at 4.47% (versus Barclays at 3.63%). With the FTSE 100 average yield at 3.9%, I can see the benefit of choosing it for income.
In the recent half-year results, it was clear to me that the increasing dividend per share is part of a strategy to get it back to pre-pandemic dividend levels as soon as possible. This yield could even move higher from here over the course of the next year.
Why Barclays is a better banking stock
One of the reasons why Barclays shares have underperformed recently is due to a trading blunder that cost the bank billions. The over-issuance of some structured products meant that H1 profit was down by 24%.
Having looked into the matter, it was a stupid mistake, but I don’t think this is a fundamental problem for the bank. Therefore, with the share price down 4.2% over the past year and a price-to-earnings ratio of 4.59, I think it offers me better value than Lloyds. I believe the share price will be able to shake off the one-time financial hit and rally in coming months.
Barclays has a diversified network, operating in over 40 countries. It services all types of clients, including funds, corporates and high-net-worth individuals. If I want to spread my risk, then Barclays does seem to be the better option. For example, if the UK does really struggle but other countries in Europe do well, Barclays would be less negatively impacted than Lloyds.
My final thoughts
I should have some free cash to invest in coming weeks. With that, I think I’m going to opt for Barclays shares. I feel I can get better value at current prices, with less reliance on what’s an uncertain UK economy.
