Lloyds is one of the most popular FTSE 100 stocks around today, especially among income investors. As the UK’s number one mortgage lender, with more than 28m customers, it’s easy to see why investors love Lloyds.
However, this isn’t my number one Footsie stock. That goes to another firm favourite among UK investors…
This one nicks it
In my portfolio today, I own 10 FTSE 100 shares. Not because I like round numbers, but simply because that’s how many I currently have (it was 13 a few months ago).
These include BAE Systems (due to surging defence spending), HSBC (a play on the long-term growth of Asia), Diageo (recovery potential), and Aviva and LondonMetric Property for high-yield dividends.
My favourite among these 10? Engine maker Rolls-Royce (LSE:RR).
Now, I’ll admit it’s a close race with Scottish Mortgage, which is another top holding that gives my portfolio exposure to the world’s most exciting private companies (like Stripe, Revolut and Anthropic).
However, Rolls-Royce stock has fallen 18% since August whereas Scottish Mortgage is down just 7% from recent highs. Because double-digit dips in quality stocks appeal to me, Rolls-Royce nicks it right now.
A globally diversified growth company
As for why I prefer Rolls-Royce over Lloyds, there are a few reasons. The first is that the company operates globally, whereas Lloyds is domestically focused. Less than 15% of revenue originated from the UK last year.
As such, Rolls-Royce is not really dependant on the health/resilience of the UK economy to keep growing long term. We get a flavour of this in some of the company announcements over recent months:
- 13 October: Ireland’s Avolon ordered 70 Trent 7000 engines to power 35 Airbus A330neo aircraft.
- 14 August: Partnered with Reliance Industries to develop a sovereign combat engine for India.
- 15 June: Rolls-Royce SMR chosen to deliver Sweden’s first new nuclear power in 41 years.
The company’s operations are also diversified across passenger and private jet engines, combat aircraft, nuclear submarines, aircraft carriers, helicopters, luxury yachts, data centres, and more. SMRs (compact nuclear power plants) add a particularly large future growth opportunity.
As such, Rolls-Royce has multiple avenues of growth available to it over the next decade. And these trends are largely insulated from interest rate shifts. By contrast, rate changes can directly affect Lloyds’ profitability one way or the other.
Apples to oranges
Of course, comparing Lloyds to Rolls-Royce is like comparing apples to oranges. And Lloyds shareholders rarely have to worry about global supply chain disruptions.
Plus, given Rolls-Royce’s far higher starting value, there’s no guarantee that it will produce better returns than the bank stock over the next five years.
What’s more, Lloyds is offering a forecast dividend yield of 5.1% versus the engine maker’s 1.3%. So I’m clearly favouring capital growth rather than income potential here.
Dip-buying opportunity
Given what I’ve written, it’s probably obvious that I think Rolls-Royce stock is worth considering. Especially after the 18% dip makes it less expensive than a few weeks ago.
If I didn’t already have a large position in the engineering giant, I would scoop up shares today under 1,300p.
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Ben McPoland owns shares in Aviva, BAE Systems, Diageo, HSBC, LondonMetric Property, Rolls-Royce, and Scottish Mortgage.
This story originally appeared on Motley Fool
