Why Barclays PLC Should Be A Candidate For Your 2014 ISA

Barclays PLC (LON: BARC) should have a multi-decade future.

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barclaysIt’s ISA time soon, and that means a whole new allowance of £11,760 to use up — you can invest up to that amount in shares and your profits will be tax-exempt.

And, of course, you might well still have some of your 2013-14 allowance to use up before April 2014 arrives, so what should you consider?

Buy banks?

I reckon Barclays (LSE: BARC) (NYSE: BCS.US) is a good candidate, despite its recent short-term problems — they were big problems, sure, but we need to put them in the context of a decades-long investing horizon.

Here’s what the past five years looked like, together with forecasts for the next two:

Dec EPS Change P/E Dividend Change Yield Cover
2009 22.32p -53% 11.4 2.31p 0.9% 9.7x
2010 28.15p +26% 8.6 5.09p +120% 2.1% 5.5x
2011 25.65p -9% 6.3 5.56p +9.2% 3.4% 4.6x
2012 35.50p +38% 6.8 6.00p +7.9% 2.5% 5.9x
2013 16.70p -53% 16.3 6.50p +8.3% 2.4% 2.6x
2014* 28.65p +72% 9.0 9.46p +46% 3.7% 3.0x
2015* 34.60p +21% 7.5 12.98p +37% 5.0% 2.7x

* forecast

Bad though that is, it’s a much better track record than some others, notably the bailed-out pair of Royal Bank of Scotland and Lloyds Banking Group — but it’s my contention that all of our big banks should get some serious consideration when it comes to ISA time.

Tough results

Barclays’ last set of full-year results were pretty rough, with so much cash having to be set aside to cover the costs of the bank’s various misdeeds — PPI mis-selling, fiddling LIBOR rates, and its mass of toxic assets.

But even so, over the 20-years plus that I’d recommend as the appropriate horizon for an ISA investment, those things will surely just become historic blips in an otherwise steadily-rising investment.

But what a low valuation!

_ISA2In fact, although Barclays shares are down 10% over the past 12 months to 258p, the current valuation puts them on a forward P/E for this year of only 9, falling a slow as 7.5 based on 2015 forecasts — and with the dividend set to come back strongly and be yielding around 5% by 2105, I couldn’t resist adding Barclays to the Fool’s Beginners Portfolio.

What might a £1,000 investment in Barclays today be worth in 20 years’ time? Well, a dividend yield of 5%, if reinvested in shares every year, would take that thousand up to £2,600, even if the share price doesn’t budge — a 5%-per-year gain in the share price on top would take your total up to £6,700!

Shares beat cash

Barclays is currently offering just 1.3% on a cash ISA, which would turn your £1,000 into a measly £1,300 after two decades. So don’t save with Barclays — buy the shares instead!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares mentioned in this article.

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