At the moment, Barclays (LSE: BARC) sells for around £4.70 per share. So, someone with a spare £1,000 to invest ought to be able to pick up roughly 212 shares.
(In reality, it might be a bit less than that once dealing fees, commissions, and stamp duty eat into the £1,000. That is why it makes sense to choose carefully when selecting a share-dealing account or Stocks and Shares ISA).
Still, sticking with 212 shares as an illustration, what might that mean for an investor in terms of what they could get for their money?
Low single digit dividend growth
At the moment, the Barclays dividend is 8.6p per share. So, 212 shares ought to earn around £18.23 a year in dividends.
That is a yield of around 1.8%. I do not find that particularly exciting.
Not only is the FTSE 100 average markedly higher at 3.1%, but other UK-listed banks also offer bigger yields: Lloyds at 3.5% and Natwest at 5.3%, for example.
Barclays has been growing its dividend per share over the past couple of years. The most recent full-year payout was about 2% bigger than the prior year, for example.
If it maintains that modest annual growth, over the coming five years, 212 Barclays shares ought to generate around £97.65 in dividends.
Given the much bigger yields available even elsewhere in the banking sector, that dividend opportunity alone does not tempt me to buy any Barclays shares for my portfolio.
Strong share price performance in recent years
What, then, about the potential for capital gains?
Barclays shares have been strong performers in recent years. The price is up 194% in five years.
That is better than the 170% achieved by Lloyds during that period, but slightly lags the 209% achieved by Natwest on the same timeframe.
Still, I would be very happy with any one of those performances! Barclays shareholders who bought five years ago and done nothing since have almost tripled their money, even before taking dividends into account.
Too late to the party?
Past performance is not necessarily a guide to what to will happen in future.
The factors underpinning Barclays’ strong performance in recent years remain in place. The company has a powerful brand and operates in multiple markets.
Unlike retail-focused rivals like Lloyds and Natwest, it has a large investment banking operation to complement its retail banking business. That can help boost profits when the economy is doing well, though it adds risks in a downturn as investment banking demand can dry up fast — and the wage bill for such an operation is always substantial.
Barclays’ credit impairment charges last year moved up, from £2bn to £2.3bn. If the global economy weakens amid ongoing geopolitical uncertainty, defaults could rise further, hurting profitability.
That could make it hard to justify the current valuation, which sits above book value. In a weak enough economy, I could see the shares losing value compared to where they are now, as that price-to-book value ratio falls and some book values get written down.
If, though, the business keeps doing well, the share price could move higher still.
Given global economic uncertainty and Barclays’ extensive international footprint, the balance of potential risks and rewards does not appeal to me right now, so I have no plans to invest.
