What Dividend Hunters Need To Know About Barclays PLC

Royston Wild looks at whether Barclays plc (LON: BARC) is an attractive income stock.

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Today I am looking at whether Barclays (LSE: BARC) (NYSE: BCS.US) is an appealing pick for those seeking chunky dividend income.

Dividends expected to shoot higher

Even though the overhang of the 2008/2009 financial crisis has caused Barclays to experience significant earnings during the past five years, up until last year the firm managed to keep dividends rolling steadily higher. However, a colossal 56% earnings slip in 2013 prompted the firm to put the skids on its progressive policy and keep the full-year payout on hold at 6.5p per share.barclays

Still, a backdrop of strong earnings expansion in the coming years — the City’s number crunchers expect the bank to punch growth of 63% and 24% during 2014 and 2015 respectively — is expected to prompt a resumption of the firm’s expansive payout policy.

Indeed, forecasts point to a massive 41% rise this year to 9.2p per share, with an additional 39% increase chalked in for 2015 to 12.8p. 2014’s projected dividend creates a yield of 3.7%,  just above a forward average of 3.5% for the complete banking sector, and this blasts to 5.2% next year.

Restructuring drive boosting capital pile

With earnings predicted to stomp higher this year and next, Barclays carries meaty dividend coverage of 3 times forward earnings for 2014 — comfortably above the security watermark of 2 times or above — and 2.6 times for 2015.

Barclays announced in February that the £1.2bn cost of its Transform restructuring package last year was a major factor in the firm’s adjusted pre-tax income plummeting by almost a third, to £5.2bn.

But I believe that the company’s massive remodelling scheme should provide a significant boost to the firm’s capital base, a positive omen for income investors. The programme includes cutting thousands of jobs across the group, a huge downsizing of its investment bank, and a greater emphasis on technology to cotton onto changing consumer trends.

The firm is confident that this scheme can help lift its fully-loaded core tier 1 capital ratio to a respectable 10.5% by early next year, up from 9.3% at present, and the bank is looking to build this to between 11.5% and 12% in the coming years.

Boosted by recovering activity in its UK retail business, and its Barclaycard division delivering solid returns — not to mention signs of solid growth in the developing markets of Africa — I believe that Barclays is in great shape to deliver strong dividend growth over the long term.

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.

Royston does not own shares in Barclays.

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