Barclays (LSE: BARC) (NYSE: BCS.US) is a stock I’m thinking of buying more shares in after I took up the recent rights issue.
It may sound strange to increase my exposure having forked out for more shares in the rights issue, but I’m feeling bullish not only on the company’s prospects but also on the medium-term outlook for the wider stock market.
Therefore, I want to take more risk.
Since Barclays has a beta of 1.51, it seems to be just the kind of stock I’m looking for. In theory, it should rise more than the market in a bull run and (of course) fall by a greater proportion in a bear market. My own view is that the market will go higher in the medium term, so I’m hoping Barclays ends up rising by more than the market.
Of course, a high beta is not the only reason why I’m bullish on Barclays.
As a longstanding shareholder, I’ve seen the bank’s fundamentals go through peaks and troughs. However, I’m genuinely impressed with how Barclays is reducing its cost-to-income ratio through a mixture of cost savings and efficiencies, as well as focusing its efforts on the most profitable aspects of the business.
Although the cost-to-income ratio is not yet sector-leading, it is certainly moving in the right direction and I fully expect Barclays to be among the most efficient, lean and mean UK banks over the next few years, with it being ruthlessly focused on improving its margins.
In addition, Barclays remains a favoured stock for income-seeking investors like me. Although dividends per share may only be 6p at the moment, dividends per share are forecast to increase by over 80% in the next two years alone, partly as a result of increased earnings but also due to a more generous payout ratio that is set to be adopted by the company.
Indeed, a dividend per share of 11p would put shares on a yield of just under 4% — well into income territory.
So, I’m feeling bullish on the medium term outlook for the stock market, with Barclays’ high beta attracting me to the company. Furthermore, I’m impressed by the bank’s falling cost-to-income ratio, as well as the expected increases in dividends per share which should provide a fillip for income investors like me.
