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How Barclays PLC Will Deliver Its Dividend

I’m looking at some of your favourite FTSE 100 companies and examining how each will deliver their dividends.

Today, I’m putting Barclays (LSE: BARC) (NYSE: BCS.US) under the microscope.

Dividend history

It was no surprise when Barclays suspended its final dividend at the height of the financial crisis during 2008. An 11.5p interim was the only dividend for the year, compared with the previous year’s total payout of 34p.

The company committed to recommencing dividend payments during the second half of 2009 — and delivered a 1p interim and a 1.5p final. The board said that thereafter:

“It will be our policy to pay cash dividends on a quarterly basis, with three equal payments in June, September and December and a final variable payment in March …

“We want to maintain strong capital ratios and therefore expect that the proportion of after tax profit distributed through dividends will be significantly lower, for the foreseeable future, than the 50% payout level which we have operated in recent years”.

Current dividend policy

By 2012, in line with the board’s “conservative but progressive dividend policy”, the company was paying out a 6.5p dividend for the year, representing 19% of after tax profit. The board said:

“From 2014, we plan to accelerate our progressive dividend policy targeting a payout ratio of 30% over time”.

Looking ahead

Let’s take a look at the 2013 forecast numbers for Barclays alongside the UK’s other two dividend-paying banks, HSBC and Standard Chartered.

Company Recent
share price
2013 forecast
dividend
2013 forecast
payout ratio
2013 forecast
yield
Barclays 292p 7.3p 20% 2.5%
HSBC 713p 33.5p 52% 4.7%
Standard Chartered 1,470p 59.2p 40% 4.0%

Clearly, Barclays’ currently offers a much inferior income than its rivals — and even if the company were already applying the board’s medium-term payout ratio of 30%, the yield would still lag that of HSBC and Standard Chartered: Barclays’ yield would be 3.7%.

However, it’s perhaps interesting to note that Barclays’ yield would be a sector-leading 4.9% if the company matched Standard Chartered’s payout ratio — and as high as 6.4% if it matched HSBC’s!

Such hypotheticals are of little comfort for investors seeking an immediate high income, but they do illustrate just how conservative Barclays is being with its dividends at the moment, and the longer-term scope for the company to increase its income relative to its rivals when management feels the environment is right to bring the payout ratio more into line with others in the sector.

For the time being, though, it’s a case of Barclays offering a relatively low but relatively secure dividend.

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> G A Chester does not own any shares mentioned in this article.