Nothing seems to convince the markets that Barclays (LSE: BARC) is a good buy these days, and its share price remains flat. In fact, with the FTSE 100 having been on a bit of a surge of late, it makes the Barclays share price performance look even lamer — it’s lagged the index by 11% since the end of March.
News earlier this month that the bank’s chief executive, Jes Staley, has been fined £640,000 for his part in trying to uncover the identity of an anonymous whistleblower won’t have helped boost investor confidence. But the event hides what I see as clearly good news. Bringing to an end the investigation by the FCA and the PRA into the affair, it’s the only penalty levied — Barclays itself has escaped any sanction.
If you’re worried about any hardship befalling Mr Staley, his total penalty (including £500,000 already cut from his 2016 bonus by the bank) amounts to only a little over a quarter of his total remuneration. And with no further restrictions, Barclays seems set to continue to benefit from his services, which is surely a good thing — despite this blotting of his copybook, I rate him highly as a banking boss.
Barclays’ share price weakness is surely partly down to the loss it recorded for the first quarter, which was hit by a mortgage mis-selling probe in the US and further costs associated with the UK’s PPI scandal. But there’s a solid underlying trend which shows, to me at least, that Barclays has a revamped core business that I think is set to deliver years of solid returns.
That includes the bank’s forecast return to paying solid dividends, which are expected to yield 3.9% by 2019. Being very well covered by earnings, I see that as just a start. With forward P/E multiples of around nine to 10, I see one of the FTSE 100’s best bargains.
Buy the Footsie?
Speaking of dividends, I reckon the FTSE 100 is in one of the most attractive periods for income investors that I’ve seen in decades.
Typically yielding around 3.5% on average, London’s top index looks set to deliver 4.4% this year. That’s according to AJ Bell’s Dividend Dashboard, which provides quarterly assessments of the state of the FTSE 100’s dividend prospects. And wouldn’t you want a share of the £87.5bn that’s apparently earmarked to be handed over to shareholders this year? Especially when interest rates on savings are so woefully low?
Before you pile in to the biggest yields, you do need to be a tad cautious as some of the leaders are perhaps losing a little of their strength right now.
Marks & Spencer has just delivered a 6.9% yield. While I think there’s a good case to be made for an investment, cover by earnings of under 1.5 times in such a competitive and erratic industry makes me think there could be some weakness here.
The UK’s big housebuilders are offering yields of 8% to 9%, which are not as well covered as they have been. While I don’t see any collapse in these dividends, we could be in for a period of stagnation as earnings growth falls to more modest long-term rates.
But for long-term income, if you can benefit from periods of lower share prices and unusually high dividend yields, you’ll effectively be locking in today’s discount for years to come.
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Alan Oscroft 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.