The tide looks like it’s turning at Barclays (LSE: BARC). Wednesday’s first-half results revealed Q2 income of £5.4bn, leading to a profit of £2.1bn. The Barclays share price gained a modest 2% on the day, though it is up by a similar amount again as I write on Thursday.
Comparatives from the same period last year perhaps don’t mean too much. But it does bear noting that the pandemic-hit second-quarter profit in 2020 was a measly £0.1bn. The progress we’ve seen since then reminds me of how wrong investors were to panic and sell.
The UK’s banks were badly damaged, sure. But we were looking at the strongest balance sheets and liquidity measures across the sector that we’d seen in years. The banks were always going to recover, and buying hammered financial shares when they were down looked like a top move to me.
What about Barclays today? My Motley Fool colleague Cliff D’Arcy has looked into the figures, so I won’t repeat too much here. Instead, I want to examine a few key things that strike me from this latest update.
I invest in banks for their ability to provide me with long-term income. So I’d be looking more for a dependable progressive dividend than a rising Barclays share price. The latter would be a nice bonus, mind. On that score, the bank announced an interim dividend of 2p per share.
That alone is not a huge amount. Annualised, it would amount to a yield of only about 2.3%. But I expect the final dividend to be higher, and to see a decent yield by the end of 2021.
The ordinary dividend is not the only way for Barclays to enrich its shareholders. We heard that “Barclays’ capital returns policy incorporates a progressive ordinary dividend, supplemented by additional cash returns, including share buybacks as and when appropriate.”
Barclays has already completed a £700m share buyback in April. Now, there’s a second buyback to come, of up to £500m. That helps shareholders as it means future earnings and dividend payments are spread between fewer shares, so per-share amounts should improve. But it also implies that the company believes its own shares are undervalued.
Barclays share price boost?
I see this as good news, but I do think Barclays is remaining a little cautious. That is probably wise. Barclays will want to retain top liquidity ratings as we still face significant pandemic uncertainty. Right now, the bank has a chunk of reserves set aside against potential loan losses. Hopefully, we’ll see some of that released by the end of the year. And that could give the Barclays share price an extra boost.
Barclays does still face risks shared with the entire sector, and they look mainly economic to me. In the first half, Barclays’ loan book dipped a little, which is not good. And if the UK’s economy shows the kind of fragility that I fear, things might not be much better by the end of the year.
On balance, though, I’d buy Barclays for the long term now. That is, if I didn’t already have a big enough investment in Lloyds.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays 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.