Lloyds Bank (LSE:LLOY) is undergoing a dismal 2020, with profits wiped out and an enduring share price slide. Shareholders lost interest after The Bank of England forced Lloyds to cancel its dividend. It is now at the mercy of bad debts and the likelihood of an increase in defaults. In this year alone, it expects to lose between £4.5bn and £5.5bn from bad loans.
As a consumer-facing bank, its income streams are heavily focused on mortgages, personal loans, retail, small business, and commercial customers. This means it is highly sensitive to unemployment, which could very well rise once the UK government’s furlough scheme ends in October.
Lloyds share price plunge Lloyds share price has collapsed over 55% year-to-date. Depending on how the country recovers, this may not be as bad as it gets.
Although the UK banks survived the 2008 financial crisis, banks in Iceland went bust and the famous Lehman Brothers bank declared bankruptcy in the US. This makes me particularly cautious around the banking sector. Without dividends to make it a more palatable investment, I will continue to steer clear. However, for those who like a riskier share, Lloyds may not be the worst choice. It has been around since 1765 and is driven to help Britain recover and return the country to prosperity. If the economy bounces back quicker and stronger than analysts predict, Lloyds should too. But if a second wave of coronavirus takes hold things could get much worse for banking institutions.
Masking its way to success In any case, I think there are better alternatives available than the Lloyds share price. One such stock that has piqued my interest is Avon Rubber (LSE:AVON), a FTSE 250-listed specialist manufacturer of respiratory gear.
Today it announced the signing of a 10-year contract with the NATO Support & Procurement Agency to supply FM50 mask systems, powered and supplied air systems, filters, spare parts, and accessories. This reflects how highly regarded Avon Rubber is as a specialist manufacturer in this sector. In July it sold its Milkrite business for £180m, which should complete early next year. This allows it to concentrate on maintaining and growing its position as a world leader in respiratory and ballistic protection in the military and first responder markets.
Is Avon one of the best shares to buy? Investors have remained bullish on Avon Rubber for the past year and this is reflected in its share price, which has risen 72% year-to-date. It now has a very high price-to-earnings ratio of 76. This seems astronomical, but in the current economic climate top performers are achieving high valuations. I still like Avon Rubber as a share worth adding to a diversified portfolio because it continues to show room for growth. It presents a strong financial position, generates cash and runs a progressive dividend policy, with a 0.6% yield. As the world continues to battle coronavirus and geopolitical tensions cause governments to reassess their military budgets, I think Avon Rubber is in an excellent position to win further contracts in the months ahead.
While I would avoid the Lloyds share price, I think, dividend-payer Avon Rubber has proved itself to be one of the best shares to buy in the current climate.
The post Forget the Lloyds share price! I much prefer this FTSE 250 dividend payer appeared first on The Motley Fool UK.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Avon Rubber and 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 2020
First published on The Motley Fool
