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Dividend traders have to be cautious with banking shares. The prospect of falling rates of interest is an actual threat, however not all FTSE 100 banks are the identical.
Barclays (LSE:BARC) is exclusive in combining a robust retail presence with a worldwide funding banking operation. And the inventory can be fascinating from a dividend perspective.
Dividends
Proper now, Barclays shares include a 2.2% dividend yield. In comparison with Lloyds Banking Group (3.95%) or NatWest Group (4.42%), that’s not notably eye-catching.
When it comes to dividends, nonetheless, there’s much more to Barclays than meets the attention. In February 2024, the corporate introduced a particular strategy to shareholder returns.
As a substitute of accelerating its dividend, the financial institution elected to concentrate on share buybacks. In consequence, the dividend per share has elevated, however solely as a result of variety of shares coming down.
This implies a extra modest dividend yield, however it ought to – if issues go nicely – lead to stronger progress going ahead. And that is definitely what analysts are anticipating.
Outlook
In 2025, Barclays is predicted to return 0.902p per share in dividends. That’s 7% larger than the earlier yr, however the forecast is for issues to kick on considerably in 2026 and past.
The newest numbers I can discover have the dividend growing to 10.06p per share in 2026, earlier than rocketing to 12.65p in 2027. That suggests a 3.28% return primarily based on the present share value.
When it comes to annual progress, that’s an 11.5% enhance adopted by a 27.5% enhance. These are will increase that even among the UK’s high progress shares would see as greater than respectable.
Dividend traders, nonetheless, would possibly query how real looking that is. If the entire distribution stays the identical, these progress assumptions put a variety of expectation on the share buyback programme.
Share buybacks
Final February, Barclays introduced plans to return £10bn to shareholders by the tip of 2026. And it’s over midway by that programme, with £3.75bn getting used for share buybacks.
In doing so, the financial institution has diminished its share rely by greater than 11%. Because of this the dividend per share has elevated even with Barclays returning the identical amount of money total.
With the agency now having a market worth of round £55bn, nonetheless, it might take lots to convey down the variety of shares excellent by one other 10%. And that is price paying attention to.
The Barclays share value has greater than doubled because the agency first outlined its technique. And this reduces the influence of utilizing money for share buybacks on the general share rely in an enormous method.
Dividend progress
With the inventory buying and selling under guide worth, share buybacks ought to enhance the worth of Barclays shares. However I believe traders have to be real looking in regards to the future.
It might take lots for repurchases alone to generate dividend progress of 11.5% after which 27.5%. And there’s additionally a threat that inflation would possibly make rates of interest fall extra slowly than anticipated.
In that scenario, funding banking exercise may not take off in the best way some analysts expect. That might make the financial institution’s distinctive construction a weak spot, not a power.
Totally different traders justifiably have completely different priorities. However from a passive revenue perspective, I believe there are higher selections than Barclays to contemplate proper now.
