Lloyds Banking Group‘s (LSE:LLOY) share price gained 6.7% in November and has seen a fluctuating start to December. After falling to around 48p in the summer, it’s now back up to a level similar to early 2019.
With a dividend yield of over 5% and a price-to-earnings ratio (P/E) of 10, this FTSE 100 stock has financial appeal. The big question is, can it turn me into a millionaire over the longer term?
To be honest, I don’t think any single share has the power to make me a millionaire, but a collection of solid companies, with reliable and strong dividend payments theoretically could.
The power of dividend compounding means interest gets paid on top of interest and over time, this can potentially bring your financial portfolio to the dizzying heights of millionaire status.
From millionaire to billionaire
Fellow Fool Edward Sheldon looked favourably on Lloyds shares last week from the imagined perspective of billionaire Warren Buffett speculatively buying them. I tend to agree with his evaluation. The Lloyds share price is rock bottom, in comparison to previous highs, but for a considered investor, such as Buffett, it still has many tempting aspects, not least its enticing dividend yield.
A forward P/E of 15 is around the benchmark for the FTSE 100. Lloyds’ share price is considerably lower than this at 10. Nevertheless, I still have reservations when it comes to the bank, particularly in light of the current political climate in the UK and signs of a global slowdown in general. These factors, along with very low UK interest rates, which are possibly set to go even lower in the coming months, mean I’m inclined to steer clear of the banking sector.
Lloyds Bank earnings per share are 5.5p, but it has sky high debt with a ratio of 94%.
BP share price
As a FTSE 100 alternative, I’d consider adding BP (LSE:BP) to my portfolio, because even though it’s involved in the murky waters of the oil industry, I do see staying power.
BP is striving to portray a clean, polished image and is investing heavily in alternative energy research and development in an effort to make this happen.
Although the oil industry is taking its time to emerge from the major downturn of 2014, demand for oil is still increasing. Some forecasters believe demand will begin to nosedive after 2030, which is not so far into the dim and distant future, while others disagree.
Either way, I don’t see BP disappearing. If oil demand does plummet, then only the strong will survive and I imagine oil majors BP and Shell will be most likely to come out on top.
Today, BP shares are trading around £4.70. Its dividend yield is one of the highest on the FTSE at 6.8% and this is its major pull for shareholders.
However, its P/E is high at 44, so this does indicate it could be overpriced now, since investors have begun to jump back on board and push the price up. BP is working to reduce its debt and has a ratio of 53%.
But I still think the BP share price is a good addition to a millionaire portfolio-in-progress.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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 2019