So far, 2024 has been disappointing for the FTSE 100. Since 29 December, the UK index is almost unchanged, losing 0.1% of its value this calendar year. Meanwhile, some Footsie shares have pulled away hard from the market. The Barclays (LSE: BARC) share price has shot up.
The stock soars
The shares of the Blue Eagle bank have surged since they hit a 52-week low of 128.12p on 30 October. I remember that day well, because I tried (and failed) to find enough cash to sizeably increase our shareholding.
For the record, my wife and I bought a stake in Barclays in July 2022, paying 154.5p a share. At last year’s low, we were sitting on a paper loss of 17%, but I had no intention of selling. Indeed, if we could have doubled or tripled our holding back then, I would have done so without hesitation.
Since 30 October, the FTSE 100 has risen by 5.5%, while the US S&P 500 index has leapt by 22.8%. Meanwhile, the Barclays share price has shot up by 35.4% — backing my hunch that this stock was deeply undervalued at that time.
Here’s how the shares have performed over five different timescales, based on the closing price of 176.92p on Friday (15 March).
| One month | +20.6% |
| Six months | +11.4% |
| 2024 to date | +15.1% |
| One year | +24.3% |
| Five years | +13.8% |
Over all five periods ranging from one month to five years, Barclays stock has produced positive returns.
However, the above figures all exclude cash dividends, which are getting increasingly generous from Britain’s biggest banks. And collecting these cash payouts is the main reason we bought into Barclays in mid-2022.
What next for the bank?
After surging by more than a fifth in a month, the Barclays share price has bounced back hard from its lows of late October. While I’m not expecting a similar surge over the next month, I’m relieved that the stock is heading upwards again.
Even after this rebound, Barclays’ current market value is £26.8bn. If I could buy the bank outright at this price — and without any takeover premium — I would gladly do so. That’s because I still view this stock as undervalued versus the wider FTSE 100.
Based on its trailing fundamentals, the shares trade on a lowly 6.6 times earnings, delivering an earnings yield of 15.2% a year. While these figures are broadly in line with other major European banks, I see much of this sector as bargain buys.
Likewise, Barclays’ trailing dividend yield of 4.5% a year beats the Footsie’s yearly cash yield of around 4%. Even better, this payout is covered almost 3.4 times by historic earnings — a wide margin of safety. Also, this payment has risen from 6p a share in 2021, 7.25p in 2022, and 8p in 2023.
Then again, I suspect that UK bank earnings will be lower this year. Rising pressure on household budgets (hit by sky-high energy bills and higher interest rates) will likely crimp credit growth. Also, I fully expect Barclays’ bad debts and loan losses to be higher this year than last. That’s a risk.
Even so, as a long-term holder, I expect to be banking Barclays’ dividends for many years to come!
