Barclays (LSE: BARC) shares were among the very best performers on the FTSE 100 last year, almost doubling in value as investors took a positive look at UK banking.
This year the ride has been bumpier. Few shares rise in a straight line forever, and can idle after such a spectacular run.
Barclays has largely dodged the motor finance mis-selling scandal, that’s hit Lloyds much harder, but it’s a reminder that banks always carry a bit of risk. That includes the recent Barclays IT outage.
Banks have also been threatened by expectations that interest rates will continue to slide this year. Lower rates could boost mortgage demand and signal the end of the cost-of-living crisis. But they may also squeeze net interest margins. They measure the difference between what banks pays savers and charge borrowers, and this is a key profitability metric.
Can this stock continue to thrive?
And then there’s Donald Trump. His sweeping trade tariffs have unleashed a fresh wave of stock market volatility and British banks aren’t immune.
Yet there’s a chance Barclays’ investment bank might actually benefit from all the turmoil, as trading activity surges.
Despite this year’s ups and downs, Barclays shares are up a solid 9.55% so far this year. Someone who invested £10,000 when markets opened in January would now have £10,955. That’s a tidy £955 gain. Not bad given today’s uncertainty, but hardly amazing either.
Barclays shares still look good value, trading at just over eight times earnings. The price-to-book ratio is just 0.6, suggesting the stock is still undervalued.
Today’s dividend yield sits at 2.87%, which is fairly modest for a FTSE financials stock these days. That’s partly because the share price has climbed so much.
Looking ahead, analysts expect the dividend yield to rise to 3.13% this year and 3.49% next year. That’s the beauty of dividend stocks, a rising income offers a nice buffer against inflation. Assuming dividend growth is maintained.
Given that Barclays payouts are covered more than four times by earnings, they must be among the safest on the FTSE.
In February, the board showed its commitment to shareholders by announcing a further £1bn share buyback.
Dividends, growth and buybacks
In February, Barclays posted a 24% rise in 2024 pre-tax profits to £8.1bn, boosted by strong growth in investment banking and UK lending.
It also lifted its 2025 return-on-equity target to 11%. These results were issued before Trump turmoil, and the world is a very different place today. The UK economy is struggling for other reasons, too.
Operating margins are forecast to rise from 30.3% to 37.4%, though, suggesting further hopes of progress.
The 16 analysts covering Barclays have a median one-year share price forecast of 358p. If they’re right, that’s a gain of just over 22% from today’s 292.45p.
Throw in the dividend and that’s a potential total return of about 25%. Of course forecasts are never set in stone, especially today.
Barclays shares have risen almost 45% over one year and 230% over five years. They could have further scope to grow. Larry Fink, CEO at BlackRock, has just tipped UK banks for a strong comeback.
The world might finally be waking up to Barclays’ potential. Only time will tell. But I still think the shares are well worth considering for long-term growth and income.
