Its been a horrific start to 2016 for investors in Barclays (LSE: BARC). The companys shares have fallen by almost 30% since the turn of the year and despite a bounce on Friday, their outlook is still decidedly uncertain.
However, with a falling share price comes a higher yield for new investors. In fact, Barclays is now expected to yield 5.4% in the current year, with dividends per share forecast to rise from 6.5p last year to 8.3p in the current year. That would represent the first rise in shareholder payouts on a per share basis since 2012 and would be an increase of nearly 28% on last years level. In other words, the rise is substantial to say the least.
Of course, we shouldnt be particularly surprised by this. Barclays continues to perform relatively well as a business and is due to report a rise in earnings of 24% for the 2015 financial year. This is expected to be followed by more growth of 21% in 2016, which means that dividends should be going up at a rapid rate simply because profitability is doing so. And with Barclays set to have a payout ratio of around 32% in the current year, theres scope to go much, much higher with dividends.
In fact, a number of Barclays peers are far more generous when it comes to shareholder payouts. For example, Lloyds is expected to pay out 48% of its profit as a dividend this year. Were Barclays to do the same, it would equate to 12.4p per share in dividends and a yield of 8.1%. Thats twice the yield of the FTSE 100 and would still leave over half of profit to be reinvested in the business for future growth or to shore up the banks financial position.
Clearly, theres the potential for Barclays to become a hugely appealing income stock, if its not so already. However, the market seems to lack interest in the bank and has done for a number of years. With Barclays having refreshed its management team recently, this could be about to change and a fresh strategy thatfocuses to a greater extent on investment banking could help to convince investors that its a bank worth investing in.
While the outlook for the global economy is relatively uncertain, Barclays is still likely to perform well. It has a strong balance sheet, diversified product offering and isnt overly reliant on one specific region for its growth. And with its shares trading on a price-to-earnings growth (PEG) ratio of 0.4, they appear to offer excellent long-term capital gain prospects.
So, while a yield of 5.4% may sound too good to be true, the truth is that Barclays dividend is very affordable, could go much higher and the banks shares may also be one of the biggest bargains in the FTSE 100.