The Motley Fool

Forget the bad news from Barclays, I think this is what you really need to know

London-listed Barclays  (LSE: BARC) has been a dog of an ‘investment’ for the past 10 years. There. I’ve said it. The banking firm’s share price has moved broadly sideways for a decade with regular drawdowns on shareholders’ capital as the share price plunged way down. Thank goodness it has always bounced back – so far…

Erratic trading

That’s not what I want from my long-term investments. I want a share price that moves up over 10 years, a dividend that rises every year and robust, generally rising earnings and cash flow. That’s not too much to ask, is it? Yet Barclay’s record on cash flow, earnings and the dividend has been abysmal. Look at this table:

Year to December

2013

2014

2015

2016

2017

2018

Normalised earnings per share

3.4p

(2.77p)

(3.75p)

9.17p

9.71p

11.7p

Operating cash flow per share

(157.1p)

(52.6p)

81p

68.6p

357.8p

48.9p

Dividend per share

6p

6.5p

6.5p

3p

3p

6.5p

Now, I’ll be the first to admit the finances of banks can be less than straight-forward, but that table looks like Barclays ended up close to where it started over five years. Earnings dipped into loss territory before swinging back up, operating cash flow moved about all over the place, and the dividend went down before moving back to square one.

I think we can read a lot about business progress by studying the dividend record. The directors’ decisions about any company’s dividend tend to express their thoughts about current trading and the outlook. In the case of Barclays, my guess is the directors have been cautious about the outlook, and probably remain so.

The big challenge facing the firm

So, what’s the problem? One popular share research website has got Barclays labelled as a turnaround share. But it isn’t one of those, in my view. To me, a turnaround situation arises when an otherwise decent business hits some short-term problems it needs to overcome, or when a firm’s business model stops working and it needs to find a new one, or it could be because a company gets in trouble with debts even while trading well. Barclays isn’t any of those situations. It’s a firm with a cyclical business and nothing more.

Big London-listed banks such as Barclays are out-and-out cyclical outfits with profits and cash flows that cycle up and down in an erratic pattern. Dividends and share prices plunge and surge, and the trading outcome these firms produce is often buffeted around by macroeconomic factors outside the directors’ control. Is every cyclical plunge a turnaround situation? I don’t think so. If the profits, dividend and share price of Barclays all go down, it’s just normal behaviour for the bank, so we need to get used to it.

We’ve all probably become hardened to the kind of disappointing news that came with last week’s first-quarter results from Barclays. But that doesn’t seem to stop the firm’s low-looking valuation from attracting investors. I’m not one of them. I think the firm deserves its low rating and I’m looking for better investments elsewhere.

After almost a decade, there are signs the record-breaking bull run may be coming to an end. Opinions are split about whether we’re in a bear market or just seeing a correction… either way, volatility is back with a vengeance. Fortunately, you don’t have to go it alone; download The Motley Fool’s Bear Market Survival Guide today and discover the five steps we believe any investor can take right now to prepare for a downturn… including how you could potentially turn today’s uncertainty to your advantage!

Click here to claim your free copy now.

Kevin Godbold has no position in any share mentioned. 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.