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He Barclays (LSE: BARC) share price has been one of the biggest risers in the FTSE 100 this year, increasing 72% since the beginning of January.
I want to invest a little more in the financial sector in early 2025. Right now, I think NatWest Group probably has the advantage. But Barclays is close behind and things could easily change when it is ready to buy.
More to come
Analysts remain very bullish on Barclays, giving one of the strongest “buy” ratings I can see on the market. FTSE 100 right now.
They have a modest share price target increase of 9% to 288.5p at stake. But that's based on the next 12 months, and earnings forecasts remain positive beyond that.
We're looking at a forecast price-to-earnings (P/E) ratio of 7.5 this year, which will fall to 5.5 by 2026 if the outlook is good. And if they do, the current price target could be unambitious.
One thing that might put me off is a dividend forecast that will return just 3.3% this year and just 3.8% by 2026. That's mostly what puts NatWest ahead in my estimate right now , with an expected return of 6% in 2026.
Strong prospects
While Barclays' dividend yield is not the highest in the sector, the bank aims to return more cash to shareholders in the coming years.
In the third quarter there was talk of a “plans to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, with a continued preference for buybacks“.
This is equivalent to more than a quarter of Barclays' total market capitalization. And I definitely prefer short-term returns like this to be earned through buybacks rather than, say, special dividends.
But what could hinder these optimistic hopes?
It is not a simple path
There are still a number of potential obstacles on the road ahead.
Falling interest rates should reduce lending spreads. And Barclays is also exposed to US rates, through its international banking arm. Still, any regulatory easing by the incoming Trump administration could help.
Furthermore, those forecasts for this year and the next two might look good. But when was the last time we can remember that bank forecasts were met as planned, without interruption, for three years in a row? I'm not sure I've ever seen it.
Barclays has undergone changes over the last year. It has involved some cost cuts and a refocus on key business aspects. That should be good in the long run, but it brings uncertainty to the game.
And despite my love of buybacks, I think Barclays' relatively low dividend yield could drive investors to other parts of the sector. After all, the dividend is one of the main measures that impacts us first.
So will Barclays be my top banking choice by early 2025? Given these thoughts, probably not. But a lot could happen between now and then.
