How Strong Are Barclays PLC’s Dividends?

BarclaysIf you invest in the financial sector, one thing you’ll surely have your eye on is dividends. After all, cash is the business of these companies, and generating a steady stream of it to hand over to shareholders is what they’re all about.

In the banking crisis, Barclays (LSE: BARC) (NYSE: BCS.US) suffered like the rest of them, even if it did avoid the need for a taxpayer bailout.


In 2009, the annual dividend was slashed by 78% to just 2.5p per share, from 11.5p the year before. The share price had recovered from the worst of the year’s slump by then, but was still way below pre-crash highs, and the payout yielded less than 1% that year.

The dividend did start to recover pretty much right away, and was back over 5p per share in 2010. It’s been steadily rising since, but even 2013’s payment of 6.5p per share still only yielded 2.4% — and obviously investors will be looking for more than that in the long term. So how strong and how reliable are future dividends likely to be?

Well, last year’s results saw a fall in investment bank income and some rising costs, as Barclays’ turnaround continues. In the words of chief executive Antony Jenkins, “It is now twelve months since we set out our Transform programme, which began the process of making Barclays the ‘Go-To’ bank for all of our stakeholders. In that time we have taken measures to strengthen our capital base and manage risk which places Barclays in a good position to deliver competitive advantage for the bank in the years to come, resulting in higher and more sustainable returns for our shareholders“.

Dividend steady

The dividend was kept at the previous year’s level of 6.5p again, and we have since seen the first interim payment for the current year maintained at 1p per share. First-half pre-tax profit was down 5%, and the firm told us it continues “to be cautious about the trading environment” and is seeking to further reduce costs.

Prior to that first-half update, the City’s analysts had been forecasting a dividend rise this year, to 7.8p per share, but since then at least one broker has reiterated a repeat of the familiar 6.5p per share.

At today’s share price of 234p, that would yield of just 2.8% — but those still predicting a pay rise might turn out to be right. And there’s a recent consensus for at least 10p per share for 2015, although that has dropped a little from a forecast of better than 11p before H1 results were out.

Rises to come

Even 10p would boost the yield to a very respectable 4.3%, and there’s little doubt that Barclays is laying the ground for further sustainable rises in the coming few years.

With this year’s dividend likely to be covered more than three times by earnings, and the shares trading on a forward P/E of only 10 for this year and 8 for next, I see Barclays as a safe bet for strong and rising dividends as its reform programme pays off.

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Alan does not own any shares in Barclays.