Are Barclays (LSE: BARC) shares cheap? Well, a good start to the year didn’t last, and the price is still down 30% in five years.
Bank shares look a bit shaken right now. First we had the collapse of Silicon Valley Bank. And Credit Suisse is only still here thanks to a takeover.
And there are new fears that First Republic Bank could be the next, with a run on cash and the shares in a slump.
But here in the UK, the banks look set to provide some of the best FTSE 100 dividends in 2023.
Market leaders?
Forecasts show bank profits growing strongly. In fact, AJ Bell‘s latest Dividend Dashboard survey has them leading the market.
The financial sector could account for more than half the profit growth of the whole FTSE 100 this year. In fact, the total dividends paid by banks this year could even beat 2007. That was a record year. And it was the last year before the big financial crash.
Dividend cash
The City expects the trend to continue in 2024 too, with another jump in dividend cash from the banks.
HSBC Holdings is on to hand out the biggest pile of cash this year, at around £9bn. Barclays is down the list, with an estimate of £1.4bn.
But that would still be a yield of close to 6%. And more than three times covered by forecast earnings.
First quarter
Barclays looks good so far this year. The bank posted a Q1 update Thursday, and was able to boast a £2.6bn profit before tax.
That’s come from its consumer business, which saw a 47% rise in income. And a lot of that is from a boost in credit card spend in the US.
Corporate and investment banking income only rose by 1%. That seems like the riskier division. But it still hit a Q1 record of £4bn.
The future
So we have bullish forecasts, with the banks set to shine on the dividend front in 2023. Barclays shares are on a very low price-to-earnings (P/E) ratio of less than five too.
And we have a Q1 profit that beat expectations. What could possibly go wrong? Well, a few things. High interests rates can push up lending margins. But they also mean pain to borrowers and can lead to bad debt.
Bad debts
Barclays, with the rest of the banks, has had to make rising impairment provisions over the past 12 months. A further interest rate rise could see that rise even further before the year is out.
Barclays is also open to investment bank risk. That could be why its shares wobbled more in this year’s bank scare. And I guess it’s why they’re on such a low valuation now.
Still cheap
But I think all of these fears are already built into the low share price. And by some way too, with a good bit of safety margin.
I think Barclays could be a buy for long-term investors who are not put off by short-term risk. We could see nice gains this year, I reckon.
