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This has been a very lively year for the Barclays (LSE: BARC), which sometimes oscillated violently. However, despite a positive start to 2023, the stock will end the year lower.
Rise and fall
As I write, Blue Eagle bank shares are trading at 153.82p, valuing the group at £23.3bn. This makes Barclays the 26th largest company in the world. FTSE 100.
On December 30, 2022, the stock closed at 158.52 pence, so it has lost 3% this calendar year. However, after an initial surge into 2023, the shares hit a 52-week high of 198.86p on March 8.
This initial gain was not sustained, as a brief but intense banking crisis in the United States caused financial stocks to plummet around the world. Within days, Barclays shares had lost 35% of their value, shocking shareholders (including me).
However, after recovering from late March to mid-September, they sank again to reach their 2023 low of 128.12p on October 30. At this point, I viewed this stock as a scream buy. Since then it has increased 20%.
Barclays has been a long-term lemon
My wife and I bought these shares for our family portfolio in July 2022 at 154.5 pa. So, so far we are pretty much breaking even on our purchasing.
As an old-school value/income/dividend investor, I consider Barclays a classic value play. Still, its shares have suffered a long-term disappointment, losing 3.1% in one year and rising just 2.5% in five years.
However, at current levels, I still see this stock as one of the biggest bargains on the FTSE 100. It trades at just 4.6 times earnings, which is a massive 21.8% earnings yield. The Footsie figures are 11.3 and 8.8%, respectively.
What's more, the market-beating 5% annual dividend yield is covered 4.4 times by lagging earnings. This makes it one of the best-covered high yields on the market.
A binary bet on recovery in 2024?
My family bought Barclays for its generous dividend stream. Here are the payouts to shareholders since the 2020 coronavirus lows:
Financial year | Dividend per share |
2021 | 6 p.m. |
2022 | 7.25p (up 20.8%) |
2023 | 2.7p* (up to 20%) |
After increasing its cash payout by more than a fifth in 2022, the bank followed suit with this year's interim dividend. I expect a final payment of 6p by 2023, late March or early April 2024.
That said, UK economic growth has been close to zero in 2023 and many economists are predicting a recession next year. If this happens, Barclays could see its revenue, profits and cash flow fall.
Additionally, increased pressure on households from inflation, high energy bills and higher interest rates could increase provisions for bad debts and credit losses. Furthermore, rate cuts would reduce the spreads Barclays makes between lending and savings rates.
Despite this, today I see the Barclays share price as a brilliant bargain. In fact, I have high hopes of it reaching £2 in 2024. That's 30% above the current price. I could be wrong, but how could I get there?
First, rising profits driven by a revival of the US investment bank. Second, continue increasing your dividends. Third, due to higher earnings per share due to a smaller share base. Fourth, because reducing bad debt increases results. Fingers crossed I'm right!