With the economic headwinds gathering around the UK, 2017 proved to be a year to forget for Barclays (LSE: BARC).
The banking giant saw its share price reverse 9% during the course of the year and, while the FTSE 100 share ended the year with a flourish, it would be foolhardy to rule out another heavy downturn in the weeks and months ahead as the broader economy struggles.
Indeed, this scenario could easily see predictions of a 20% earnings jump by City experts in 2018 fall by the wayside, in my opinion, and this puts paid to the appeal of Barclays’ ultra-low forward P/E ratio of 9.9 times.
Along with the prospect of tanking revenues and a rise in bad loans in the near-term and possibly beyond, Barclays and its rivals also face a steady rise in misconduct charges — PPI costs jumped an extra £700m during the third quarter, for example, and charges are likely to keep rising ahead of the 2019 FCA deadline.
And Barclays’ wafer-thin balance sheet makes me extremely worried in light of all of these factors. Bank of England stress test results released in November showed the bank, like RBS, scraped past Threadneedle Street’s capital requirements.
This is likely to put the kibosh on chunky dividends being paid out any time soon, casting doubt on City predictions that an estimated payout of 3p per share in 2017 will leap to 5.6p in the present period, a figure that yields 2.8%.
Splash the cash
Unlike Barclays, the construction giant — like the majority of its sector peers — saw its share price leap as predictions of a sharp downturn in the market last year, following the Brexit referendum of summer 2016, failed to materialise. The company added 34% in value as the year progressed.
This is no surprise given that the market dynamics for Taylor Wimpey remain extremely favourable. Even though the political and economic troubles battering the UK look set to persist for some time, the government’s Help To Buy initiative, combined with generous mortgage products from lenders, is keeping demand from first-time homebuyers ticking higher.
And in the absence of a deep property pool, this situation is feeding into the hands of Taylor Wimpey as demand for newbuild homesteads subsequently continues to boom. Just this week, the FTSE 100 firm advised that housing completions rose 5% during 2017, to 14,541 units, while it also boasted of a “good forward order book” into the new year. This stood at £1,63bn as of December 31.
Against this backcloth, City analysts are predicting that Taylor Wimpey will thumb its nose at fears of a heavy earnings drop and actually see the bottom line gather fresh momentum — an anticipated 7% earnings rise in 2017 is expected to be followed by a 10% rise in the present period.
And this bright outlook should allow the firm to keep doling out enormous dividends. A projected 13.6p per share dividend for last year is expected to move to 15.1p in the present period, meaning investors can soak up a 7.6% yield.
Taylor Wimpey can be picked up for next to nothing, the firm rocking a dirt-cheap forward P/E ratio of 9.3 times. I already own shares in the business and this reading is tempting me to pick up more.
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Royston Wild owns shares in Taylor Wimpey. The Motley Fool UK has recommended Barclays. 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.