Four months ago, in early February, Barclays (LSE: BARC) shares were looking solid. They’d bounced back hard from October’s lows and things were finally looking up for shareholders.
But then three mid-sized US banks collapsed in early March, sending financial stocks tumbling around the world. And Barclays duly followed suit.
The stock sinks
At its 52-week high on 8 March, the Barclays share price peaked at 198.86p. But then it nosedived, hitting a 52-week low of 128.12p just 12 days later.
To be honest, this brutal 35.6% price decline stunned me. And it hurt my family portfolio too, as my wife bought stock in the Blue Eagle bank at 154.5p a share in July 2022.
Here’s how this popular and widely traded stock has performed over eight different timescales:
| One week | +2.4% |
| One month | +2.0% |
| Three months | -4.3% |
| Six months | -2.0% |
| One year | -5.8% |
| Two years | -13.4% |
| Three years | +24.8% |
| Five years | -22.3% |
The bank’s shares have dipped almost 6% over one year and have declined by nearly a quarter over five years. Hardly inspiring returns. But these figures exclude cash dividends, which have been pretty generous at times.
Even so, being a Barclays shareholder over, say, the last half-decade has been a thankless task.
This stock looks dirt cheap
As March’s banking crisis raged, I repeatedly wrote that I would ‘go large’ buying this stock — if I had any spare cash, that was. On Friday, the shares closed at 156.34p, more than 22% above their 2023 low. Another missed opportunity, whoops.
At current price levels, the entire group is valued at £24.3bn. To me, that’s a lowly price tag for a UK Big Four bank with a large US investment-banking presence. If I could, I’d gladly buy the whole outfit today.
What’s more, this stock still appears cheap to me. It trades on a humble price-to-earnings ratio of 4.8, for an earnings yield of 20.9%. In comparison, the FTSE 100‘s earnings yield is around 8%.
And Barclays’ dividend yield of 4.6% a year is above the Footsie’s yearly cash yield of 3.7%. Even better, it’s covered a whopping 4.5 times by historic earnings. To me, that seems remarkably attractive.
What might boost the shares?
Now for the $64,000 question: what might light a fire under this stock, sending it rising after years in the doldrums?
First, analysts are worried about rising bad debts and loan losses at British banks. But if the bank reports only modestly higher write-downs in its half-year results on 27 July, then this could support the stock.
Second, rising interest rates, red-hot inflation and sky-high energy bills have hammered household incomes. But were Barclays to report steady or only slightly declining earnings next month, this would also be good news for its owners.
Third, with such high dividend cover, I’m hoping that the bank’s board will increase the next dividend payout. The latest final dividend was raised to 5p from 4p previously, a 25% uplift. If dividend growth remains strong, I see it as good reason to keep our existing Barclays shares.
All of the above might not happen, so risks remain. But if things do start to look up, we may buy even more!
