Is NOW The Time To Buy Dividend Disasters Barclays PLC, Rio Tinto plc And Rolls-Royce Holding PLC?

Investors in Barclays (LSE: BARC), Rio Tinto (LSE: RIO) and Rolls-Royce (LSE: RR) have had a rough time. Buyers of the shares at just about any point in the last four or five years are underwater — and in recent weeks there’s been a further bitter pill to swallow in the form of brutal dividend cuts.

But could these cuts represent the dark before the dawn? Has the time come for long-suffering shareholders to buy more shares, and for new investors to get stuck in?


Barclays announced its dividend cut in its full-year results on 1 March. While the company maintained the 2015 dividend at the same 6.5p level as the previous year, the board said it intends to slash the payout to 3p for both 2016 and 2017. The shares dived 8% on the day to 158p, and have since edged lower, closing yesterday at 150p.

The rebased dividend — covered a whopping 5.6 times by forecast earnings — gives new chief executive Jes Staley plenty of slack to deliver nice dividend increases in future. But let’s not be too cynical. The ex-JP Morgan veteran made a personal investment of £6.5m in Barclays’ shares a week after his appointment was announced — and at price of 233p.

With the shares currently 150p, we’re looking at a discount not only of 36% to Mr Staley’s buy price, but also of 45% to Barclays’ tangible net asset value. The bank still has financial penalties to pay for past wrongdoings and a restructuring to get through, but the shares appear very buyable at the current level.

Rio Tinto

In its full-year results on 11 February, Rio maintained its 2015 dividend at the same 215¢ level as the previous year, but announced a ditching of its progressive dividend policy. For 2016, the board said it intends to pay a dividend of not less than 110¢. Rio’s cut was widely anticipated, and the shares moved only modestly lower on the day to 1,705p.

Since then, Rio has announced the departure of its chief executive, there’s been a bit of a rally in metals prices, and the company’s shares have gained 15%, closing yesterday at 1,955p. Volatility may persist for some time, but for long-term investors Rio looks good value, even if rated based on half of historical peak earnings.


When Rolls-Royce released its full-year results on 12 February, the board said the final dividend and next interim would be halved. While a first dividend cut since the 1992 recession had been expected, the consensus had been for a less severe lopping than the company announced. Despite this, Rolls-Royce’s shares rose 14% to 606p on the day. And have since climbed almost the same again, closing yesterday at 682p.

Although the dividend cut was deeper than expected, there was palpable relief that the company hadn’t issued a sixth profit warning and positivity about new chief executive Warren East’s reassurance that pressure on free cash flow was a short-term issue. Again, for long-term investors — looking at Rolls-Royce’s historical peak earnings and the company’s continuing strong order book — the shares look good value today.

Barclays, Rio and Rolls are all going through difficult times, but there’s tremendous potential for their shares to rerate significantly higher in the coming years — and for their dividends to start rising again in due course.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.