Is Barclays PLC An Annuity Alternative?

Roland Head believes that now is the perfect time to buy Barclays PLC (LON:BARC) for long-term income seekers.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Barclays (LSE: BARC) (NYSE: BCS.US) is out of favour at the moment, and its share price has slumped to just 239p, leaving the bank’s shares trading on a 2014 forecast P/E of just 8.5, with a prospective yield of 3.9%.

barclaysDespite this, I believe Barclays has the makings of a great long-term income stock — and the bank’s current problems are providing a cheap buying opportunity that could deliver outstanding long-term dividend yields to patient investors.

Indeed, I believe Barclays could benefit from this year’s Budget pension changes, which Legal & General estimates could lead to £6bn per year being withdrawn from the annuity market — much of which I expect will be invested in dividend-paying stocks, instead.

Here are three reasons why I’m currently a buyer of Barclays:

1. Sentiment is at rock bottom

Barclays isn’t popular — not with consumers, investors or politicians. According to the Financial Conduct Authority (FCA), it’s the most complained-about British bank; almost 310,000 new complaints from retail customers were logged against Barclays during the second half of last year.

Barclays is still battling various legal troubles. The bank recently settled a £70m Libor-rigging test case out of court, avoiding the embarrassing spectacle of several former and current Barclays managers, including former CEO Bob Diamond, having to testify in court.

In my view, these problems are relatively short term: ultimately Barclays is a large, profitable and diverse bank, whose portfolio includes one of the UK’s biggest and most profitable credit cards, Barclaycard, as well as a fast-growing African banking business.

Billionaire investor Warren Buffett famously said that investors should “be greedy only when others are fearful”. The current negative sentiment on Barclays won’t last forever, and when it starts to improve, I expect Barclays share price to rise, too.

2. It’s cheap

I’ve already mentioned the bank’s forecast P/E of just 8.5, but Barclays’ results last year weren’t that bad either, if you ignore the exceptional costs.

Based on last year’s adjusted earnings, Barclays’ shares are trading on a P/E of 14.3 and a yield of 2.7%. That’s not expensive compared to the wider market, and provides a good baseline for performance improvements this year.

An added bonus is that Barclays’ shares currently trade at just 85% of the bank’s tangible net asset value. If the market re-rates Barclays’ shares at one times book value, the bank’s share price would rise by nearly 20%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland owns shares in Barclays but not in any of the other companies mentioned in this article.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »