Barclays (LON: BARC) (BARC.L) is a popular stock among UK investors, however, from a dividend investing perspective, the bank has little appeal right now, in my view. Here’s why.
Barclays shocked the market in March last year when it announced that it would be cutting its dividend by over half. The FTSE 100 bank slashed its dividend payout from 6.5p per share in FY2015 to 3.0p per share for FY2016. At the current share price of 184p, that 3.0p per share dividend payout equates to a trailing dividend yield of just 1.6%.
Investors should not expect a significantly higher dividend yield this year, according to the City. The current FY2017 consensus dividend estimate is 3.05p per share, equating to a yield of just 1.7%.
With many other FTSE 100 companies paying generous dividend yields of between 3%-5%, Barclays’ dividend yield looks quite underwhelming in comparison.
Lack of momentum
Furthermore, Barclays appears to lack momentum at present. The bank’s investment banking arm is struggling, and with up to 20 different investigations into the company going on right now, including investigations from the Serious Fraud Office and the Department of Justice in the US, profitability going forward looks opaque, in my view. That could have implications for the dividend.
Barclays’ dividend forecast for FY2018
Having said that, the City does expect Barclays’ dividend to rise next year.
The current consensus estimate for Barclays’ FY2018 dividend payment is 6.68p per share according to Stockopedia. That equates to a yield of a more healthy 3.6% at the current share price.
Investors should note though that the 6.68p per share figure is just an estimate, and therefore there is no guarantee that Barclays will pay a dividend of that magnitude.
Perhaps, in the future, Barclays will offer dividend appeal. If the bank can simplify its business model and string together a few years of consecutive dividend increases, I would definitely consider buying Barclays for its dividend. However, for now, after cutting its dividend last year, I see very little reason to buy Barclays for its dividend.
Disclosure: Edward Sheldon, CFA has no position in Barclays.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.