UK banks NatWest Group PLC (LSE:NWG) and HSBC Holdings PLC (LSE:HSBA) look good currently for investors looking for income, according to Shore Capital.
Based on the broker's income screen, the UK bank sector scores strongly based on modest valuations and attractive yields.
“HSBC (Buy at 667p) has improved profitability significantly over the past couple of years, driven by higher interest rates," it said.
“This has led to an improvement in return on tangible equity and capital generation.
“Together, these factors have allowed increased shareholder distributions, both in terms of dividend payments and share buybacks - including a special dividend worth $0.21/share this quarter.”
NatWest (Hold at 328p) has also seen its profitability and broader financial performance improve and is in a strong position to return capital to shareholders.
The bank has been using some of its capital to support directed share buybacks of HM Treasury’s shareholding, which has now reduced to less than 20%.
However, this still leaves a significant amount for distribution through dividends and market buybacks.
NWG currently offers a 5.2% forward dividend yield.
Other banks worth a look suggests ShoreCap include OSB Group PLC (LSE:OSB) (OSB, Buy at 482p) which the broker says remains well-positioned to benefit from the ongoing professionalisation of the UK buy-to-let market.
“Despite recent disappointments on net interest margin guidance, the group remains very profitable, and we forecast mid-to-high teens return on tangible equity.
“The group is also well capitalised, with surplus equity on its balance sheet. We expect these factors to underpin a growing dividend with further distributions to shareholders by way of share buybacks." OSB currently offers a 6.8% 2024 yield.
Paragon Banking Group PLC (LSE:PAG) is another buy-to-let candidate (Buy at 754p) having indicated an improvement in its lending pipeline, meaning loan book growth is expected to accelerate.
“This will theoretically consume more growth capital, but we still expect healthy dividend growth and ongoing share buybacks.”
PAG currently offers a 5.4% 2024 yield.
Other ideas mentioned include house stock MTI Wireless Edge Limited (AIM:MWE) (39p), RWS (Buy at 183p) and in the FTSE 350 space IG Group (IGG, buy at 839p), as a highly profitable and cash generative company with significant surplus capital.