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A cheap FTSE 100 dividend growth stock that I’d buy today and hold for the next 20 years

Around half of all divorces take place during the first 10 years of marriage, according to UK government statistics. So making a commitment to hold on to something for 20 years is clearly a big deal.

Many investors would claim that it’s not realistic to decide to hold a share for the next 20 years. I don’t agree — I think it’s realistic enough, if you ignore short-term noise and stay focused on the bigger picture.

There are certainly some stocks I’d be happy to buy today and commit to holding for 20 years. Today I want to talk about one of my top picks for long-term buyers.

329 years can’t be wrong

20 years is little more than a heartbeat for Barclays (LSE: BARC), the FTSE 100 bank that’s been in business since 1690 — that’s 329 years.

It’s true that the Barclays share price has been a dismal performer recently, falling by 40% over the last four years. But I think this short-term weakness could give long-term investors an opportunity to buy at a bargain price.

Analysts’ forecasts, which exclude certain one-off items, suggest the bank will generate an after-tax profit of £3,652m this year, or about 21.7p per share. That puts the stock on 7.2 times forecast earnings.

Shareholders should see significant dividend growth too. Forecasts suggest the payout will rise from 6.5p per share to 8.7p per share in 2019. That’s a forecast dividend yield of 5.5%, at current prices.

Last but not least, the bank’s stock trades at a 40% discount to its tangible net asset value of 275p per share. I see that as an attractive margin of safety.

Why isn’t the price higher?

Good question. There are still various problems with banks. Ultra-low interest rates and competitive mortgage markets mean that it’s harder to make money from lending than it used to be.

Banks still aren’t very profitable — last year, Barclays generated a return on tangible equity of just 3.6%. However, when costs relating to misconduct charges were stripped out, this figure rose to 8.5%. Indications so far are that a return of more than 9% is likely in 2019.

What about PPI?

The PPI claims deadline in August means that costs relating to this compensation programme will now tail off. However Barclays, like most rivals, experienced a massive last-minute surge in compensation claims in the final weeks of the month.

Although the bank had already set aside £9.6bn for compensation, it now expects to need a further £1.2bn-£1.6bn.

Given this, you might wonder why Barclays’ share price has been rising recently. I think the secret to understanding this is to remember that markets hate uncertainty. It’s not the first time that we’ve seen bank share price rises following a major settlement.

Why I’d buy

I suspect banks will eventually find ways to boost their profit margins, despite low or even negative interest rates.

The end of PPI should also boost the amount of spare cash available for shareholder returns.

Barclays is unloved by investors, but I think it’s in much better health than 10 years ago. That’s why I think now could be a good time to be buying BARC shares.

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Roland Head has no position in any of the shares 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.