Just imagine if supermarkets were like stock markets. Instead of strolling into your local Tesco with a trolley andloading up on your weekly essentials, youd have a trading website thatshowed the current prices, accurate to the minute, of all the supermarket products. So youdcheck the prices ofBRC (broccoli), YOG (yoghurt) and CAKE (cake, obviously).
Your alerts would tell you that Sauvignon Blanc is currently half price, and you couldpile intobuy-one-get-one-free on bourbon biscuits.
Stock markets are no different to supermarkets
Sounds like a crazy idea? Well it is. But if you think about it, stock market trading isnt all that different. If you were at your local supermarket, youd buy goods only when they were cheap, and would avoid the pricey items.
Its the same with investing. Youd stock up on shares when they were cheap. And thats why theres never been a better time to buy Lloyds Banking Group (LLOY) and Barclays (LSE: BARC). Investors should take advantage of the recent share price pullback to stock up on these banking stalwarts.
Lloyds has fallen from a high of 89p last year to just 64p. Barclays has fallen from a high of 289p last year to 191p. These 25%-plus falls must be difficult to take for anyone who isalready a shareholder. But I think it has opened up a buying opportunity.
Lets take Lloyds. The 2015 P/E is estimated to be 8.47, with a dividend yield of 3.42%. Now analystshave always tended to be over-optimistic about this firms profitability, butI still thinkLloyds is cheap.
The numbers are similar for Barclays. The 2015 P/E is predicted to be 8.77, with a dividend yield of 3.39%. Again this looks good value.
The rider with the banks has always been that the actual profithas often been nowhere near the forecast profit, due to fines, PPI litigation and bad debts. And with no interest rate rise on the horizon, there wont be a sudden jump in underlying profitability any time soon.
However, there are some promising signs. The level of fines and of litigation seems to be gradually tailing off. The bad debts accumulated in the years since the Credit Crunch are largely cleared. The age of banker-bashing seems finally to be at an end.
The banks are set to recover steadily, but the eraof hyper-profitable banks islong gone. Why? The legacy of the Great Recession, a future where low inflation and low interest rates arethe norm, and the fact that tech plays an ever more important part in financial transactions.
Thats why I see the banks as slow-growing-but-steadily-improving dividend stocks thatyou squirrel away and forget about until your retirement.
These companiescan betucked away in your portfolio andwill yield dividends and share price increases for years to come. If you’re interested in dividend share opportunities, then our experts at the Fool have unearthed a little known firm that’s worth a much closer look. It’s good value, high-yielding, and a growing business.
Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.