I'd sell Lloyds Banking Group plc to buy this one dividend stock

The Motley Fool
Lloyds cashpoint atm
Lloyds cashpoint atm

I believe Lloyds(LSE: LLOY) is one of the best dividend stocks trading in London today as I have written before here. The bank's current dividend yield, coupled with its healthy capital cushion and strong cash generation all point to the conclusion that Lloyds is not only one of one of the best dividend stocks in the FTSE 100 today, but that the bank will also be able to grow its payout substantially in the years ahead.

However, while I think that Lloyds is one of the UK's best dividend stocks, I also believe that every portfolio should have some exposure to international markets. After a decade of restructuring, Lloyds' international presence has been chiselled away to almost nothing, and the company is basically a play on the success of the UK economy. This means that if the UK falls into recession, Lloyds' earnings and dividend will suffer as a result.

Looking overseas

Considering Lloyds' domestic focus, I believe a top dividend stock with a broad international presence might be a better pick for those investors looking for more overseas exposure. Sagicor Financial (LSE: SFI) looks as if it could be a Lloyds substitute, and it would also sit well in a portfolio alongside the UK's largest mortgage lender.

Sagicor is interesting because even though the company has a market capitalisation of £274m, it still flies under the radar of most investors. The company provides financial services across the Caribbean and in the US offering plenty of diversification compared to Lloyds. Growth in these markets has been attractive with pre-tax profit growing by 40% between 2013 and 2016 as revenue has remained relatively constant.

And because Sagicor flies under the radar of most investors, the financial services company's shares are cheap. At the time of writing, the shares trade at a trailing 12-month P/E of 4.9 and price-to-tangible book ratio of 0.6. Such a deeply discounted valuation makes this stock difficult to pass up. Moreover, the shares currently support a dividend yield of 4.4% and there's plenty of room for payout growth with the dividend covered nearly four times by earnings per share.

Why the low valuation?

The question is, if the company has been able to achieve such astounding growth, why is Sagicor so cheap?

It looks as if investors are avoiding the company just because it flies under the radar and has exposure to frontier markets in the Caribbean. For adventurous, high-risk investors this could be the perfect opportunity to bag an undervalued financial stock with an attractive dividend yield and international exposure, as well as a history of steady growth.

These traits could make Sagicor the perfect sidekick to Lloyds in a portfolio but I do not think the company can replace Lloyds entirely.

Even though Sagicor might have better growth prospects and international diversification, there's no denying that Lloyds' size and scale gives it a huge advantage over the smaller firm. Still, the two might complement each other nicely in a portfolio if you're willing to take on the extra risk.

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Rupert Hargreaves has no position in any 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.