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I can’t stop buying Lloyds shares! Should I start buying Barclays instead?

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Every time Lloyds (LSE: LLOY) shares drop below 45p, I’ve developed the strange habit of buying them. I just can’t resist the FTSE 100 dividend stock, whose yield looks set to climb and climb over the years ahead.

This year, Lloyds Banking Group is set to pay me income of 6.11%. In 2024, that should rise to 6.72%. I’ll plough every penny into buying more Lloyds stock, and that will continue for another decade or so, until I’m ready to retire. The more Lloyds shares I hold, the merrier I am.

I really like this stock

However, I also have to face up to one cold, hard fact. While Lloyds’ dividends are growing at pace, the stock price is sluggish. It climbed just 2.53% last week, despite all the excitement over June’s inflation figure. It’s up just 5.83% over one year and down 26.59% over five. Lloyds shares look cheap but never seem to recover their lost value.

We’ve had a bumpy few years with the pandemic, war in Ukraine, the cost-of-living crisis and this spring’s banking meltdown. Lloyds shares could spring into life once inflation is really on the run, but we’re not there yet. So is FTSE 100 banking rival Barclays (LSE: BARC) a better way to play the rebound?

Barclays has more growth potential, thanks to its international banking operations, something Lloyds no longer has. It’s riskier as a result, though, and was the only FTSE 100 bank to trigger contagion fears in February.

Last week, it showed more zip than Lloyds, rising 5.64%. This suggests it could win the recovery. It’s up just 3.47% over the year, though, and down 11.02% over five years. There’s little to choose between the two firms performance-wise. Macro factors seem to be determining most of their share price movements. Which begs the question how much diversification I would get by buying Barclays shares anyway?

Barclays’ yield is notably lower at 4.4%, but in 2024 I can expect income of 6.24%. Both stocks look good value. Lloyds is slightly pricier trading at 6.25 times earnings while Barclays trades at just 5.04 times. Also, Lloyds has a price-to-book value of 0.6 (where a figure of 1 is fair value). Barclays looks cheaper at 0.4.

Both banks passed recent Bank of England stress tests with ease. They’re making similar pre-tax profits too. Lloyds posted £6.93bn in 2022, Barclays touched £7.01bn. They’re taking advantage of rising interest rates to boost their net interest margins, primarily by paying savers inferior rates. Despite threats from Chancellor Jeremy Hunt, neither seems keen to fall into line.

I know what I’m going to do

Naturally, both would suffer if we get a recession. The UK’s house price wobbles could drive up loan impairments. When interest rates finally retreat, their margins will narrow. As a long-term investor, I’m not too worried about short-term trends like these. They all seem to be reflected in today’s dirt-cheap valuations.

Personally, I think both Lloyds and Barclays look fantastic long-term buy-and-holds. I should buy Barclays shares, for the sake of diversification, but I know myself too well. I’ll no doubt keep snapping up Lloyds, especially if they dip below 45p again.

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