Suffice to say, the last year has not been a positive one for investors in Barclays (LSE: BARC) (NYSE: BCS.US) or Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US). That’s because the share prices of the two banks have fallen by 7% and 25% respectively over the last twelve months, which is even more disappointing when you consider that the FTSE 100 is up almost 4% during the same time period.
However, looking ahead, both banks could end the year up 33% on their current price levels. Here’s why.
Income Potential
Although many savers may be hoping for a rise in interest rates, the chances of it happening seem to be rather slim. Certainly, a token rate rise of 0.25% or 0.5% could take place before the end of the year, but the days of 4% or 5% interest rates are probably many, many years away. As such, dividend yields look set to become even more important, as income-seekers continue to chase another means of generating an income. In turn, increased demand for higher yielding stocks could see their share prices move upwards in the months ahead.
So, with Barclays and Standard Chartered both forecast to offer excellent dividend potential, they could become more in-demand this year. For example, Barclays is expected to increase dividends per share by a whopping 82.6% over the next two years, and this means that in 2016 it could be yielding as much as 4.8%. And, although Standard Chartered is expected to increase its dividends by just 5.4% over the same time period, its low share price means that it still could yield as much as 6% in 2016.
Valuation
With the FTSE 100 having a yield of around 3.3%, it is clear that both Barclays and Standard Chartered are likely to be considered high yields stocks over the course of 2015, simply because their forward yields are 50% (Barclays) and 82% (Standard Chartered) higher than that of the FTSE 100.
In fact, if Barclays and Standard Chartered were to trade on the same yield as the FTSE 100, it would mean that their share prices would move significantly higher. In the case of Barclays, a 3.3% forward yield would equate to a share price of 366p, which is 46% higher than its current share price. Meanwhile, a 3.3% forward yield for Standard Chartered would mean it trading at an incredible 1680p, which would represent a gain of 82% on its current share price.
Clearly, such sky-high share prices may not be seen in 2015 but, with the two banks also having upbeat forecasts and improving financial positions, they could begin to move towards such levels during the course of 2015. And, with dividend payout ratios that are still rather modest, it would be of little surprise for their dividends to move upwards at a brisk pace and increase their income appeal even further. As a result, share price gains of 33% this year seem to be very achievable for both banks, thereby making them highly appealing buys at the present time.
