The Lloyds share price has fallen by 25% from April’s 2019 high of 67p, as the market has priced in growing economic uncertainty.
The bank’s latest results flagged up the risk of a slowdown in sectors such as manufacturing and construction. Losses from consumer loans rose to £556m, 39% higher than during the second half of 2018.
Arguably, the risks facing the bank are reflected in its share price. This is below book value and offers a dividend yield of 6.9%. But if you’re looking for high-yield stocks, I’d consider these other choices first.
Safe haven for uncertain times? Sin stocks such as British American Tobacco (LSE: LON:BATS) are not liked by all investors. But the addictive nature of its products makes BATS shares a defensive buy.
Revenue rose by 4.1% to £12,170m during the first half of the year, while operating profit edged 1.3% lower, to £4,380m. This fall was mainly due to a £436m charge relating to a legal case in Canada.
Stripping out one-off charges, the group generated an adjusted operating profit margin of 42.9% during the period. This was achieved despite increased spending on the development of lower-risk new products, such as vapes.
Net debt remains high at more than £45bn. But management expects this to start falling soon as cash flows through to repay money borrowed for the 2017 acquisition of Reynolds American (NYSE:RAI).
Tobacco stocks usually carry the risk of bad news. But in my view, BATS is cheap enough to offset these risks, trading on nine times forecast earnings with a dividend yield of 6.9%.
Dig deep Mining and oil group BHP Group (LSE: BHP) has also slipped back recently. The BHP share price is down by 13% from the 2019 highs seen in July. The main trigger for this decline is a growing belief that iron ore prices might return to more normal levels after spiking earlier this year.
In my view, that’s no bad thing for investors looking to buy mining shares. I reckon BHP is now starting to look more reasonably priced, with a tempting forecast dividend yield of 7.2% for the current year. This payout should be backed by strong cash generation and low levels of debt.
I’ve long been a fan of BHP’s diverse mix of oil and mining assets. The company’s business covers all the most important commodities. I see this stock as a great way to earn a regular income from a notoriously cyclical and volatile sector of the market.
A better choice than Lloyds? If you’re looking for income opportunities in the financial sector, then one stock I’d consider is Legal & General Group (LON:LGEN) (LSE: LGEN).
The savings and asset management group has doubled its profits since 2013. It’s also much more profitable than any of the big UK banks.
One of the secrets of this growth has been the company’s success in the fast-growing pension risk transfer market. During the first half of the current year, Legal & General took over £6.7bn of pension liabilities from company schemes, including the UK’s largest ever bulk annuity deal with Rolls-Royce (LON:RR).
Earnings are expected to rise by about 11% to 33p per share in 2019, while analysts expect the dividend to rise to 17.6p per share. These projections give the stock a price/earnings ratio of 7.3 and a dividend yield of 7.3%.
I think LGEN stock looks very attractive for income investors at current levels.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group (LON:LLOY). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019