Prediction: in 12 months the Barclays share price and dividend could turn £10,000 into…
The Barclays (LSE: BARC) share price has had a storming run. It’s up 58% over the last 12 months and a staggering 266% over five years.
Those are impressive figures from a supposedly big and boring British blue-chip. Itâs yet another reminder of how underrated FTSE 100 shares can be. And those numbers are before accounting for all the dividends paid over the same period.
Existing investors will be thrilled, the rest of us kicking ourselves for missing out. Past performance isnât a guide to the future, but there are still ways of judging where Barclays shares may go next.
Valuationâs still reasonable
I like to start with a stockâs valuation, typically its price-to-earnings (P/E) ratio. Despite its recent surge, Barclays remains surprisingly cheap at 10.6. That’s well below the 15 often seen as fair value. The key reason is that it’s still making bags of money to justify that P/E. Earnings per share jumped 62% in the year to 30 June, which followed a 33% rise the previous year.
The price-to-book ratio is another helpful measure for banks. Barclays sits around 0.7, comfortably under the figure of 1 seen as good value, while a figure of up to 2 is often acceptable. This suggests thereâs still room for growth, provided profits continue flowing.
Strong quarterly results
Barclaysâ Q3 results, published on Wednesday (22 October), showed a 7% drop in profits to £2bn. That was mostly due to an extra £235m provision for the UK motor finance scandal, which brought total impairments to £325m. Its investment bank also booked a £110m credit impairment.
Brokers think these are just bumps on the road. AJ Bellâs Russ Mould noted the bank is on track for its best-ever year for pre-tax income, barring unforeseen problems, and should beat the £8.4bn made in 2021.
Consensus analyst forecasts produce a one-year median target at 429p. If correct, that would mark a 11.2% increase from today. Thatâs fine, but notably slower than recent gains. It may reflect wider concerns about a US-driven market slowdown that could hit Barclaysâ investment banking arm.
The trailing dividend yieldâs just 2.2%, expected to edge up to 2.4%. Adding this gives a total projected return of 13.6%. That would turn a £10,000 investment into £11,360. Itâs not an overnight fortune, but that’s not what investors should look from buying FTSE 100 shares.
The real benefits come via steady long-term compound growth from a rising share price and reinvested dividends. That also allows investors to look past short-term market swings.
Share buyback spree
There’s a reason for that low dividend yield. Barclay plans to return a bumper £10bn to shareholders between 2024 and 2026, partly through dividends but mostly via share buybacks.
Yesterday, it surprised investors by announcing a quarterly £500m buyback, with more to come. I personally prefer dividends, but wonât complain about buybacks, as they should also boost returns over time.
I think Barclays shares are still worth considering today. I favour a long-term view, given all the worries about a potential stock market crash (but that goes for almost any stock today). Barclays is a brilliant reminder that FTSE 100 shares are still amazing way to build long-term wealth.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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.
