Barclays (LSE: BARC) shares have had a bumpy start to the year, as many investors dumped their holdings during the banking crisis. Now they’re on their way up again.
Barclays was thought to be at much greater risk of banking contagion than FTSE 100 rivals Lloyds Banking Group and NatWest, due to its US investment banking operations. Its share price is down 13.61% over three months, despite climbing 7.5% over the last month. Over one year, it’s barely moved at all.
There was a real buying opportunity in early March, but sadly, I didn’t have cash to hand. The Barclays share price still looks cheap today, though, trading at just five times earnings. Its price-to-book value is a measly 0.3, compared to 0.7 for Lloyds.
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This is a low valuation
It’s dirt cheap, to be honest, so it looks like the buying opportunity is still there. And here’s another exciting reason why I’m keen to buy Barclays shares. They currently yield a generous 4.7% a year, covered a hefty 4.2 times by earnings. That’s well above the FTSE 100 average of 3.5%.
The forecast yield is even more impressive at 5.7%, with cover still mighty strong at 3.7.
Now, let’s say I wanted to generate income of £1,000 a year from Barclays shares. Its current dividend per share is 7.25p, so to hit my goal I’d have to buy 13,793 of them. At today’s share price of around 154p, that would cost me a whopping £21,241.
Analysts expect Barclays will pay a dividend of 8.6p per share in 2023. In that case, I would only need to buy 13,244 to hit my income target. That would still cost me £20,396, though, which is more than my entire Stocks and Shares ISA limit.
Should I go big?
Would I want to invest so much in just one company? Maybe if I was a high-roller, but I’m just an everyday investor.
Also, while Barclays is an exciting opportunity, both for income and share price growth, it’s a bit risky. Annual profits actually fell 14% last year, due to its underperforming investment unit, £1.22bn of credit impairment charges and a $361m settlement with the US Securities and Exchange Commission, following a trading error.
Having said that, it still posted a meaty pre-tax profit of £7bn in 2022. Its capital position was strong enough to fund a £500m share buyback, with that 7.25p dividend lifted almost 21% from 6p in 2021. Investors can expect similar rewards in future, although as ever, buybacks and dividends are never guaranteed.
Another risk is that in net interest margins – the difference between what banks pay savers and charge borrowers – may start falling once inflation and interest rates speak.
I’m now building up my watchlist of top FTSE 100 dividend stocks, both for my annual ISA and a recent SIPP transfer, and Barclays is in my top five.
The moment I have the cash, I’ll look to invest £3k or £4k in Barclays shares. Given today’s low valuation, it’s hardly worth waiting for a dip. I might not get one anyway.
