Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Can Lloyds Banking Group PLC (ADR) (LYG) Outperform Citigroup? – Citigroup Inc. (C)

Lloyds Banking Group PLC (ADR) (LYG)LONDON — If you’re interested in building a profitable, diversified portfolio, then you will often need to compare similar companies when choosing which share to buy next. These comparisons aren’t always as easy as they sound, so in this series, I’m going to compare some of the best-known names from the FTSE 100, FTSE 250 and the U.S. stock market.

I’m going to use three key criteria — value, income, and growth — to compare companies to their sector peers. I’ve included some U.S. shares, as these provide U.K. investors with access to some of the world’s largest and most successful companies. Although there are some tax implications to holding U.S. shares in a U.K. dealing account, they are pretty straightforward and, I feel, are outweighed by the investing potential of the American market.

Today, I’m going to take a look at two banks that were hit hard by the financial crisis but now appear to be on the road to recovery: Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Citigroup Inc. (NYSE:C).

1. Value
The easiest way to lose money on shares is to pay too much for them — so which share looks better value, Lloyds Banking Group PLC (ADR) (NYSE:LYG), or Citigroup?

Value Lloyds Citigroup
Current price-to-earnings ratio (P/E) n/a 19.1
Forecast P/E 12.5 10.1
Price-to-book ratio (P/B) 0.8 0.8
Price-to-sales ratio (P/S) 0.9 2.1

It’s almost too close to call, here, with both banks trading at around 0.8 times their book value and on similar forward P/E ratios. However, Lloyds posted a statutory loss of 1.3 billion pounds for 2012, whereas Citigroup Inc. (NYSE:C) managed to deliver a $7.9bn profit, and has been profitable since 2010. For me, Citigroup’s proven profitability and its lower forward P/E ratio give it a slight edge over Lloyds in terms of value.

2. Income
With low interest rates set to continue for the foreseeable future, dividends have become one of the most popular ways of generating an investment income. Yet banks have become one of the worst places to look for yield, so do Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Citigroup have anything to offer income investors?

Value Lloyds Citigroup
Current dividend yield 0% 0.1%
5-year average historical yield 2.2% 5.3%
5-year dividend average growth rate n/a -71.6%
2013 forecast yield 0.4% 0.1%

Once again, Citigroup Inc. (NYSE:C) appears to be further down the road of recovery than Lloyds. Although its $0.01-per-quarter dividend is pretty nominal, it passed a recent Federal Reserve stress test with flying colors and could have requested a dividend increase while remaining within Federal guidelines.

Citigroup’s CEO Michael Corbat has chosen not to pursue this route and to spend another year improving the bank’s capital position, but he had the choice — unlike Lloyds Banking Group PLC (ADR) (NYSE:LYG)’ board, which did not recommend a dividend in 2012, due to “regulatory uncertainty and the statutory loss in the year.” Consensus forecasts suggest that Lloyds might declare a small dividend in 2013, but in reality, this is just a mixture of guesswork and hope, as until Lloyds becomes sustainably profitable, it is unlikely to declare a dividend.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.