Barclays (LSE: BARC) is a popular stock among UK investors. But is it a good dividend stock? Do its dividends prospects match those of rivals Lloyds Banking Group or HSBC Holdings?
Let’s take a look at the 2017/2018 dividend forecasts for Barclays.
Low dividend yield
The first thing to note about the business is that it cut its dividend in March 2016. The bank shocked investors by announcing that it would be cutting its payout in half, and slashed the distribution from 6.5p per share in FY2015 to just 3p per share for FY2016. A dividend cut of that magnitude is never a pleasant experience for shareholders.
Is it expected to turn things around going forward? What is the expected payout for FY2017? At present, City analysts expect it to pay 3.05p per share for FY2017. At the current share price of 205p, that equates to an underwhelming yield of just 1.5%. When you consider that rivals Lloyds and HSBC have prospective yields of 6.2% and 4.9% right now, Barclays does not look like a good stock to own from an income perspective.
What about next year? Is the outlook more positive? The good news is that analysts do expect a dividend hike in FY2018. The current consensus dividend estimate is 5.6p per share. That’s a yield of 2.7% at the current share price – an improvement on the current yield. However, it’s still quite a low yield, especially when you consider that the average FTSE 100 forward yield is 3.2%. It’s also worth noting that over the last month, analysts have downgraded their FY2018 dividend estimates by around 0.3p. That’s a chunky downgrade. By contrast, analysts have upgraded their dividend estimates for Lloyds.
Looking at those dividend forecasts, Barclays has little dividend stock appeal to me right now. Given the large number of FTSE 100 dividend stocks paying over 4%, I’ll pass on Barclays’ low yield.
This bank yields 4.4%
One banking stock I do have my eye on is Close Brothers Group (LSE: CBG). The FTSE 250-listed merchant bank flies under the radar of many investors. But don’t let that put you off. Close Brothers has an outstanding dividend track record.
You see, the £2.2bn market cap bank has never cut its dividend. That’s some achievement. Even during periods of extreme financial turbulence such as the Global Financial Crisis, the bank managed to pay out a steady dividend. As larger rivals have slashed their payouts in recent years, Close Brothers has always maintained or increased its dividend. Growth has been strong too. Over the last six years, the payout has been hiked by 50%.
Right now, the bank’s dividend prospects look compelling. This year, analysts expect a dividend payment of 63.2p per share. At the current share price, that’s a nice yield of 4.4%. Coverage is anticipated to be healthy, at around 2.1 times, and a 5% dividend hike is expected for next year.
Given its higher yield and impressive dividend growth history, I’d be far more likely to add Close Brothers to my dividend portfolio than Barclays right now.
Edward Sheldon owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.