So it’s the FTSE 100 for dividends, and the FTSE 250 to find growth stocks, right?
Well, there are more dividend yields of 8% and higher to be found in the FTSE 250 right now. And in the FTSE 100, I’m seeing stocks on very low PEG ratios, a key growth measure.
Growth valuation
The price-to-earnings (P/E) ratio compares a stock price to expected earnings. Other things equal, lower is better. But better earnings growth forecasts will typically mean a higher P/E.
That’s where the PEG comes in. And we get it by dividing the P/E by forecast earnings growth. Anything under about one can indicate a possible growth buy. And if we see 0.7 or less, that can be extra special.
FTSE 100 growth
The following table shows some FTSE 100 stocks with what look to me like attractive PEGs. And some of them surprise me. It shows P/E and earnings per share (EPS) growth forecasts for the next three years, together with PEG ratios.
| Stock | P/E 2024 |
EPS growth 2024 |
PEG 2024 |
P/E 2025 |
EPS growth 2025 |
PEG 2025 |
P/E 2026 |
EPS growth 2026 |
PEG 2026 |
| Lloyds Banking Group (LSE: LLOY) | 9.5 | -23% | n/a | 7.7 | +23% | 0.33 | 6.4 | +19% | 0.34 |
| NatWest Group | 8.4 | -19% | n/a | 7.8 | +8.0% | 0.98 | 6.9 | +14% | 0.49 |
| Marks & Spencer | 12.5 | +22% | 0.57 | 11 | +15% | 0.73 | 10.2 | +7.5% | 1.4 |
| Associated British Foods | 14.5 | +40% | 0.36 | 13.5 | +5.1% | 2.6 | 13 | +6.0% | 2.1 |
| Legal & General | 11.2 | +209% | 0.05 | 9.9 | +14% | 0.71 | 9.0 | +9.6% | 0.94 |
One thing immediately seems clear from that table — 2024 is a very unusual year.
Both the banks, Lloyds and NatWest, are set to record falls in earnings this year. And that’s not what growth is made of, at all.
But just look at how low the forecast PEG ratios are for 2025 and 2026! That’s the kind of thing that even small-cap growth seekers would be drawn too — and these two are top FTSE 100 banks.
Dividend or growth
This also shows that the distinction between income investing and growth investing isn’t always clear.
I mean, on top of those low forward P/E and PEG measures, Lloyds and NatWest offer prospective dividend yields of 5% and 5.2%, respectively.
Both reported earnings falls in the first quarter, but they’re both upbeat about the future.
Even in this tough year, Lloyds expects to report a CET1 ratio of about 13.5%. It’s a key measure of liquidity, and that would be strong. And its P/E looks set to drop to about half the FTSE 100 average.
Verdict
Then we see Associated British Foods on a low PEG this year as it gets back to strength, but then the growth attraction wears off.
And these contrasts sum up the current state of the market for me. I wouldn’t buy any of these just on these measures, and I’d have to research the potential gains and the risks of each one.
But sentiment and rational valuation look like they’re miles apart for some FTSE 100 stocks at the moment. And that can mean a great time to look for anomalies and snap up bargain buys.
This post was originally published on Motley Fool
