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Is it finally time to buy shares in Barclays for that fat dividend?

Today’s full-year results report from banking giant Barclays (LSE: BARC) revealed to us an increase in the total shareholder dividend for the year of just over 38%, to 9p per share.

City analysts following the firm have pencilled in a further lift in the payment for 2020 of between 7% and 8%. Meanwhile, with the share price close to 176p, the forward-looking dividend yield is running around 5.5%.

But that’s not the only indicator suggesting decent value. The price-to-book value sits around 0.5, and the earnings multiple is below eight. Is it finally time to buy shares in Barclays to lock in that stream of generous and growing dividends?

Trading well

After all, the company is trading well. Overall profit before tax came in almost 26% higher than the year before at £4.4bn. But that did include a massive provision for Payment Protection Insurance (PPI) claims of £1.4bn, much higher than the £400m allowed in 2018. There was a last-minute surge in applications because of the deadline for claims, which occurred during the period.

One day — and it looks like being soon — the whole PPI scandal will be behind the banking sector. Maybe that’s another reason to pick up a few shares in Barclays now. The figure for profit before tax, ignoring litigation and conduct costs, was £6.2bn, up from £5.7bn in 2018. Perhaps that’s a good indicator of the underlying progress Barclays has been making.

Looking ahead, chief executive James E Staley said in the report he expects future earnings to “drive increased returns to shareholders.”  He anticipates a “significant reduction” in charges related to litigation and conduct from the current trading year onwards. Staley said the company intends to pay a progressive ordinary dividend supplemented with additional cash returns to shareholders, “including share buybacks.”

So, why not pile in now and buy some shares? After all, the garden looks rosy. However, there’s something that bothers me about the Barclays share price, and it’s keeping me away from the stock.

The problem, as I see it

Indeed, one popular share research website has the firm listed as a turnaround opportunity. And the financial fortunes of the company have been getting better for some time. But the improvements in the business have not been reflected in the share price chart.

The shares bottomed out at about 90p in the spring of 2009 after plunging almost 90% in the wake of the financial crisis back then. But by the autumn of that year, the price had rebounded to around 335p. Sadly, that’s as high as they’ve been since. The chart shows a lot of swinging up and down, but with a clear trend lower. The underlying business has been turning around, but the stock hasn’t.

And I don’t believe the shares in Barclays will handbrake-turn and embark on a sustained uptrend anytime soon. Because of the firm’s inherent cyclicality, I see a great deal of risk that the shares could plunge again at some point and limited potential for them to rise. Therefore, for me, the dividend is unattractive.

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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.