Payouts poised to shoot skywards
Dividend growth has taken a back seat at Barclays in recent times as the firm has elected to shore up the balance sheet in line with regulatory requirements. Indeed, the company has undergone extensive cost-cutting and restructuring in a bid to build its capital base, and in the absence of sustained earnings growth elected to keep the full-year payout on hold last year at 6.5p per share.
But with the banks transformation package paying off handsomely City analysts expect earnings to grow 21% and 29% in 2014 and 2015 respectively Barclays is expected to get dividends stomping higher again.
A 2% lift in the total payout is anticipated for this year, to 6.6p per share, and expectations of sustained bottom line growth is expected to drive the dividend 44% higher to 9.5p. As a consequence Barclays yield is set to jump from 2.6% in 2014 to a mouth-watering 3.8% in 2015.
Bulky balance sheet underpins perky projections
While the payout potential of some of its industry peers has been called into question owing to their fragile balance sheets, Barclays expense-slashing endeavours has enabled it to build sufficient capital buffers so as not to dent dividends. Indeed, the European Banking Authoritys stress tests in November put the companys CET1 ratio under adverse conditions at 7.1%, sailing ahead of the 5.5% minimum requirement.
And with strong momentum at the companys Personal & Corporate Banking and Barclaycard divisions set to underpin strong revenues growth through to end-2015, prospective dividends throughout this period are well covered by earnings. Indeed, the estimated payments for 2014 and 2015 boast coverage of 3.1 times and 2.7 times correspondingly, comfortably above the security benchmark of 2 times.
Dividends should continue heading higher
And I believe that Barclays should become an increasingly-tantalising income pick in the coming years as the bottom line expands. Firstly, the banks ongoing Transform package is helping to strip out expenses across the business whilst improving its digital services, a critical strategy given the surging popularity of online banking.
At the same time Barclays is in a great position to enjoy the fruits of an improving British economy, while a rapid scaling back of its Investment Bank removes much of the earnings risk seen in previous years. Meanwhile the firms expansion across developing regions across Africa should also boost the companys long-term earnings potential and with it dividend profile.
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