Barclays plc isn’t the only dividend growth stock I’d hold for the next decade

Barclays plc (LON: BARC) could be worth buying alongside this financial services sector peer.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Dividend growth could become a more important aspect of investing during the course of 2018. With Brexit now just over a year away, uncertainty surrounding the future prospects for the UK economy could ramp-up further. This could cause sterling to come under pressure, and this may push inflation higher. The end result could be a more challenging environment for income investors.

That’s why Barclays (LSE: BARC) and other shares with fast-growing dividends could be of interest. Alongside this financial services sector peer, the bank’s share price could be positively catalysed by a more optimistic dividend outlook.

Improving prospects

Under its current management team, Barclays has been a rather disappointing income stock. It decided to hold dividends at 3p per share in recent years in order to focus on improving the strength of its balance sheet. While this may lead to better capital ratios which could provide a more stable growth outlook for the long term, it means that investors in the company have had to make do with a dividend yield of around 1.5% or less.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

With inflation recently moving to over 3%, this means the stock has failed to offer a real income return. But with earnings due to rise by 32% this year and 14% next year, the prospects for income investors could be about to dramatically improve. The company is forecast to raise dividends per share to 5.5p in 2018, followed by further growth to 8.2p in 2019. This is an annualised growth rate of around 65% and puts the company on a forward dividend yield (for 2019) of 3.9%.

This could appeal to investors if inflation remains high. The market does not yet appear to have priced-in the rising profitability and shareholder payouts that are expected. Evidence of this can be seen in the stock’s price-to-earnings growth (PEG) ratio being a rather lowly 0.7. As such, now could be the perfect time to buy it for the long run.

Growth opportunity

Also offering strong dividend growth potential is private and commercial banking specialist Paragon (LSE: PAG). The company released a first quarter update on Monday which showed it continues to make good progress with its strategy. New lending increased by 65% compared to the first quarter of 2017, with an increasing proportion of complex buy-to-let lending flows following the PRA rule changes. With growing demand and opportunity within specialist UK lending markets, the company’s outlook appears to be positive.

In fact, Paragon is forecast to post a rise in its bottom line of 8% this year, followed by further growth of 11% next year. This puts it on a PEG ratio of 0.9 and means that there could be significant upside potential on offer. It also means that dividend growth could be high and with the stock expected to yield 4.1% from a dividend which is covered 2.6 times by profit in 2019, it could become a popular income share over the medium term.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares in Barclays. 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.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »