FTSE 100 bank Barclays (LSE:BARC) remains one of the UK’s most popular blue-chip shares. Even as the UK economy struggles for traction, investor interest in this cyclical share remains rock solid.
One reason could be its gigantic dividend yield for the next few years. Its enormous 6.1% yield for 2023 marches to 6.9% and 8% for 2024 and 2025 respectively.
Both readings beat the broader Footsie‘s forward average of 3.9% by a big distance.
I’m looking for top dividend stocks to buy for my own portfolio in the new year. Could Barclays be the passive income stock I’ve been searching for?
Excellent forecasts
The dividends on Barclays shares have recovered strongly following the end of the Covid-19 crisis. And analysts are expecting this momentum to continue through the medium term at least.
An improved 8.55p per share reward for 2023 is tipped to rise to 9.74p next year, and again to 11.19p in 2025.
The City’s profit forecasts for the bank suggest these estimates look pretty realistic too. Dividend cover sits at 3.2 times and 3.3 times for 2024 and 2025 respectively. Any reading above 2 times provides a wide margin of safety for investors.
Barclays’ solid balance sheet gives additional strength to those dividend projections. Its CET1 capital ratio stood at 14% as of September.
But is Barclays a buy?
UK banks are famed for being generous dividend payers. Their well-managed share portfolios and diversified revenues streams produce stable earnings and cash flows over time.
However, gloomy growth forecasts for the British and US economies from next year suggest potential trouble for Barclays. While it may not impact dividends to a huge degree, it could result in extra share price falls that outweigh the financial benefit of big dividends.
Underlining the weak state of the domestic economy, the British Chambers of Commerce recently said that “the UK economy remains on course to avoid a technical recession, but growth is likely to remain so feeble that it will be hard to spot the difference”.
UK growth is tipped to fall from 0.4% this year to a still-weaker 0.3% in 2024. This would cast fresh doubt on Barclays’ already-poor earnings forecasts and push the FTSE bank even lower.
Trouble coming
Retail banks like this face a prolonged period of weak loan growth and higher-than-normal bad loans. As if this wasn’t enough, they also face a sharp fall in their net interest margins (NIMs).
The Bank of England is tipped to cease its rate hiking cycle. And pressure from its competition and the Financial Conduct Authority could put extra strain on its margins.
Barclays has already slashed its NIM forecasts for the new year. It now predicts margins of 3.05-3.10%, down from a prior range of 3.15-3.2%, news that naturally prompted City brokers to cut their earnings forecasts.
As I say, the bank’s dividend forecasts are highly attractive. But I need more to convince me to buy Barclays shares today. Right now, I’d rather invest in other high-yield FTSE 100 shares.
