Currently (16 July), Rolls-Royce Holdings‘ (LSE:RR.) shares cost over 12 times more than those of Lloyds Banking Group (LSE:LLOY). But this is irrelevant. What really matters is the value you receive in return for buying a stock.
Let’s discuss this further by looking at the fundamentals of these two popular UK shares using various valuation techniques.
Profit
Based on earnings, Lloyds appears to offer better value. It has a historic (2025) price-to-earnings ratio of 16.1. Rolls-Royce’s is an eye-watering 47.3.
Having said that, Lloyds’ multiple is higher than the FTSE 100’s four other banks.
Balance sheet
It’s a similar story looking at assets and liabilities. The bank has a price-to-book ratio of 1.35 compared to an astonishing 43.8 for Rolls-Royce. This is a reminder of how the pandemic decimated the latter’s balance sheet.
Among its peers, Lloyds is only beaten by HSBC.
But comparing valuations across sectors is misleading. Each industry has a different risk profile and capital expenditure requirements.
However, on paper at least, Rolls-Royce’s shares appear to be more expensive. This probably reflects, in part, its recent rapid growth and an expectation that this will continue. And it’s an engineering-cum-technology business. I suspect most investors think it has better growth potential than a 261 year-old bank.
On the other hand, should there be any sign of a slowdown, its shares could tank.
Income
When it comes to dividends, Lloyds wins hands down. In 2025, it paid 3.65p a share giving the stock a historic yield of 3.2%. For 2026, analysts are expecting 4.31p. If correct, this implies a forward yield of 3.8%. However, I wonder if the bank will do better than this. Its 2025 payout ratio was 52%. A 4.31p dividend would equate to ‘only’ 43.5% of earnings per share (EPS).
With a 2025 dividend of 9.5p, Rolls-Royce paid around a third of its EPS to shareholders. Disappointingly, the stock has a trailing yield of 0.7%. Based on analysts’ 2026 forecasts, this rises to 0.9%.
Of course, dividends are never guaranteed.
My view
Looking ahead, forecasts for both companies are impressive. By 2028, Lloyds is expected to have increased its EPS by 96%, when compared to 2025. For Rolls-Royce, the anticipated rise is 75%.
But if I had to choose which is most likely to double its earnings before the end of the decade, I’d pick Rolls-Royce.
I acknowledge that Lloyds is a well-run company with a strong brand. But it’s much more UK-centric which, I believe, is a risk. And with 20% of the British mortgage market, it could be vulnerable to a rise in loan defaults should interest rates remain higher for longer. Or worse still, go up as a result of post-Iran inflationary pressure.
Rolls-Royce has more strings to its bow – currently aircraft engines, defence, and power systems. In future, it hopes to add small modular reactors to this list, assuming mini nuclear power stations prove to be commercially viable. This gives it better protection should we encounter some challenging economic headwinds, or if one part of its business struggles. That’s why I believe its shares are worth considering.
I can see why Lloyds might appeal to some income investors but, in my opinion, there are better higher-yielding opportunities to consider elsewhere.
Should you invest £5,000 in Rolls-Royce Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?
James Beard owns shares in Rolls-Royce Holdings plc.
