I’m a fan of investing in FTSE 100 banks, but even I have to admit Barclays (LSE: BARC) shares have generated little excitement lately.
They almost went into meltdown in February, as markets decided Barclays was more vulnerable to the banking crisis than London-listed peers Lloyds Banking Group or NatWest.
It’s been slow going
That’s because Barclays has retained a US investment banking operation, while Lloyds and NatWest ditched theirs. It’s the riskiest of the three but, potentially, the most rewarding too.
The banking crisis threw up a short-lived buying opportunity in Barclays. Over the last three months, its share price has rallied 13.4%. That’s hardly thunderous growth, but better than nothing. If I’d invested £10,000 on 14 March, I’d have £11,340 today.
It’s always nice when a new stock purchase starts well, although I’d never measure success over such a ridiculously short timeframe. My ideal holding period runs into decades.
Long-term investing is particularly important when buying a stock like Barclays, which is out of favour with the market and needs time and patience to recover. Its share price has fallen 20.78% over five years and is up just 0.89% over 12 months.
It’s now trading at a rock-bottom valuation of just 5.1 times earnings, one of the lowest on the FTSE 100. Its price-to-book ratio is just 0.4, where a figure of 1 is seen as fair value. This is ridiculously cheap, which is in its favour. On the other hand, Barclays has been cheap for so long I’m reluctant to flag this up as a buying opportunity.
The bank is nonetheless making money hand over fist, with group income jumping 11% to £7.2bn in Q1, delivering pre-tax profits of £2.6bn.
In full-year 2022, it made pretax profit of £7bn, which markets disliked because it was down from £8.2bn in 2021. That was largely due to £1.22bn credit impairment charges.
Barclays faces plenty of challenges as the global economy wilts. It has laid off investment banking staff amid an extended slowdown in its dealmaking and capital markets arms. Given the state of the housing market, debt impairments may now rise. The looming US recession has already forced it to push it up bad debt provisions to cover credit card defaults.
I still think it’s a good buy
On the other hand, further UK interest rate hikes will allow Barclays to widen its net interest margins, the difference between what it pays savers and charges borrowers.
All this suggests to me that when the global economy gets its mojo back, sentiment towards Barclays could swiftly rebound. While we wait, analysts are forecasting a dividend of 8.6p share in 2023, followed by 9.7p per share in 2024.
In March, my £10,000 stake would have bought me 6,579 shares at 152p each. This year, they would have paid me dividends totalling £566, with £638 to follow in 2024. That’s on top of the £1,340 share price growth I have enjoyed, so far. As ever, none of this is guaranteed.
If Barclays shares kick on and maintains its dividend, my total returns will rise over time, although, again, these things are never guaranteed. The dirt cheap bank was a good buy in March and I still think it’s a good buy today.
