Like its FTSE 100 peer Lloyds Bank, the Barclays (LSE: BARC) share price has been in pretty poor form in 2023 so far. In fact, the company is in danger of setting a new 52-week low.
Is this a sign to snap up the stock or a warning to steer clear?
Bad first impression
If I’d invested £1,000 at the start of the year, my position would be worth 12% less. That’s not necessarily surprising considering the jitters currently coursing through the UK economy.
The trouble is that the Barclays share price has been in poor form for much longer than the last eight months. The stock is down 18% in value compared to where it stood five years ago.
On first impression, that doesn’t exactly scream ‘buy’ to me.
Then again, the time to take a position in a company can often turn out to be when it’s not particularly liked. The shares also look very cheap.
Barclays currently boasts a price-to-book ratio of just 0.33. That’s low relative to the general market. It’s also low within the financial sector.
Don’t forget those dividends!
Another attraction to owning Barclays shares is the dividend stream.
As things stand, the bank is forecast to return 8.95p per share to owners for the current year. Using the share price from the close of play on Friday, 25 August, that converts to a yield of 6.2%.
That’s more passive income than I’d get from holding a fund that simply tracks the FTSE 100 (3.9%). Moreover, it looks to be easily covered by expected profit.
Even so, Barclays isn’t averse to cutting payouts when necessary. These went from 6.5p per share in 2018 to 3p in 2019. In 2020, the total dividend was just 1p per share!
This sort of form is potentially problematic for anyone dependent on the income they receive from their portfolio and insufficiently diversified.
Could we see this happen again?
Gloomy for now
The outlook is foggy, to say the least.
Revenues in its investment arm have been suffering due to ongoing nervousness among clients. Ongoing interest rate hikes in the UK and abroad also make borrowing less attractive and loan defaults more likely. Given that wages keep rising, this situation could get worse before it gets better.
As a group, banks have also come under pressure for being slow to boost rates for savers. The problem is that doing so will reduce net interest margins — the difference between what rate a bank offers to borrowers and what it must pay out to savers.
On the flip side, first-half profit of £4.6bn did meet analyst expectations. One could also argue that business at its investment arm will surely pick up once the economic clouds disperse and the next bull market begins.
So, would I buy?
All told, I’m struggling to get enthusiastic about owning Barclays shares, especially when I think about all the other opportunities that have come about as a result of the market’s latest wobble.
The stock may be cheap but this continues to have a whiff of a value trap to me. I wouldn’t be surprised if the shares were to sink lower in price.
Even if I’m required to pay more, I’d rather back higher-quality companies that stand a better chance of growing my wealth.
