The last six months have been hugely disappointing for investors in Barclays (LSE: BARC). The bank’s share price has fallen by 15% and, while the wider market has sunk by 11%, Barclays still struggles to appeal to potential investors.
A key reason for this is the uncertainty regarding its near-term future. For example, it remains the subject of significant regulatory risk, with there being a real possibility of further fines being levied against the bank. In addition, Barclays has only just appointed a new CEO and a refreshed strategy is therefore likely to be put in place in the coming months. This may be holding potential investors back since changes may be on the cards for Barclays in terms of its focus on investment versus retail banking.
Despite these risks, Barclays appears to be a sound investment and its potential rewards are very high. For example, it trades on a price to earnings (P/E) ratio of just 10 and, with its bottom line forecast to rise by 20% next year, this rating is due to fall to only 8.3 in 2016. As such, a major upward rerating could be on the cards, with dividend increases likely to be the main catalyst to improve investor sentiment. In fact, Barclays pays just 29% of profit out as a dividend, which alongside strong profit growth indicates that shareholder payouts could rise at a very rapid rate over the medium term.
Similarly, engineering company Meggitt (LSE: MGGT) has had a difficult six months, with a profit warning being the main reason for its 29% decline during the period. However, its bottom line is due to recover next year following the current year’s anticipated 8% fall, with today’s news of a contract win to supply Gulfstream G650 aircraft with HD cameras being a step in the right direction.
Due to its share price fall, Meggitt now trades on a P/E ratio of only 12.3, which indicates that it offers good value for money. Furthermore, Meggitt yields 3.9% from a dividend which is covered more than twice by profit and which is due to rise by over 10% next year. As such, it has considerable appeal for value and income investors, with growth potential being relatively bright in the longer term as the military aviation market continues to show signs of improvement.
Also falling in the last six months is Galliford Try (LSE: GFRD), with the house builder posting a fall of 10% at a time when doubts surrounding the prospects for the house building sector are beginning to emerge. However, with Galliford Try forecast to increase its earnings by 11% in the current year and trading on a P/E ratio of just 10.6, such doubts appear to be more than fully priced in.
Clearly, Galliford Try has been a superb performer in recent years and its shares are now up by 380% during the last five years. And, while the company pays a rather modest 62% of profit as a dividend, it still yields a whopping 5.9%, which makes it one of the most appealing income plays in the FTSE 100. Furthermore, with dividends having risen in each of the last five years, it appears to be a shareholder-friendly stock in that respect, which should provide its investors with confidence in its future income potential.
