Today I am looking at the dividend outlook for banking leviathan Barclays (LSE: BARC) (NYSE: BCS.US) beyond 2014.
Earnings bounceback to deliver stunning dividend growth
Barclays has once again established itself as a fantastic dividend stock after getting its payout policy back on track in recent years. The fallout of the 2008/2009 banking crisis forced the company to slash the full-year payout from 10.65p per share in 2008 to just 2.5p the following year. Since then, the company has grown the dividend at a mammoth compound annual growth rate of 27%.
City analysts expect the bank to keep the dividend flat for 2013 at 6.5p as earnings slip 27% — anticipated to be announced in results due on Tuesday 11 February — although consensus points to heady increases in the payout from this year onwards. An eye-popping 60% increase is predicted for this year, to 10.4p, with an additional 38% rise pencilled in for 2015 to 14.3p.
If fulfilled, payments for this year and next would create dividend yields of 3.6% and 5% respectively, accelerating away from a forward average of 3.6% for the complete banking sector, and 3.1% for the wider FTSE 100.
Of course swingeing dividend cuts across the banking sector in 2008 have made many investors scratch their heads over selecting such stocks for dividend growth. However, Barclays is expected to punch earnings growth of 26% and 20% in 2014 and 2015 respectively, giving it hefty dividend coverage of 2.8 times and 2.5 times forward earnings for these years.
Unlike many of its banking peers, Barclays does not have a gaping capital hole that needs to be filled and which could have a substantial impact upon shareholder returns. Indeed, the bank’s plan to build its core tier 1 capital to 10.5% around the start of next year has been praised by the Prudential Regulation Authority in recent months, assuaging concerns over the firm’s capital position.
Meanwhile, Barclays is already enjoying the fruits of a recovering British economy — profits at its ‘UK Retail’ arm rose 9% during January-September to £1.04bn — and I expect this to continue as the domestic picture improves further in 2014 and beyond.
As well, I also expect this to help revenues at its Barclaycard credit arm creep higher looking ahead, while receding concerns over the state of the global economy and timing of monetary easing scalebacks should prompt a solid recovery in its core ‘Investment Bank’ division. With substantial cost-cutting also set to boost the bottom line, in my opinion Barclays is in great shape to deliver strong earnings — and thus dividend — expansion in coming years.
