Barclays dividend bodes well for banks season

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Barclays PLC (LSE:BARC) kicked off the bank reporting season with a cheer, beating profits forecasts and also paying out more in dividends than expected.


Like its peers, Barclays was only allowed to resume uncapped dividend payments two weeks ago when the Bank of England lifted all the restrictions introduced at the start of the coronavirus pandemic.


Ahead of the results, brokers had forecast it would pay out 1.8p, so the 2p announced was a nice surprise for investors.


That will cost the bank GBP340mln, but it was sufficiently confident over its financial position also to announce a new GBP500mln share buyback on top of a GBP700mln programme completed in April.


Barclays said the half-year payment would amount to one-third of the total for the year so, on that basis, the annual dividend would be 6p or a yield of 3.4% with the shares at 176.4p, up 4.3% today.


Compared to a saver account, that yield looks very good but analysts expect more rises down the line.


Barclays resumes dividends as lower bad debts lift half-year profits to GBP5bn


The standard measure of a bank’s financial health, the CET1 ratio, is a healthy 15.1%, compared to Barclay’s target of 13-14% and the bank today said it will adopt a progressive dividend policy going forward.


Pre-the results, brokers were forecasting a yield of 5.9% by 2023, which implies the annual payment then will be around 10.4p at the current share price.


It’s not likely to be that straightforward, though, as Nicholas Hyett at Hargreaves Lansdown points out.


“Low-interest rates always make turning a profit on loans more challenging. But to make matters worse consumers and businesses are increasingly paying down higher interest accounts.


Loans in the international consumer and cards business have fallen from GBP40.8bn at the end of 2019 to GBP30.9bn 18 months later, while UK customers have cut credit card borrowing by GBP1.1bn since the start of the year.


“To make matters worse a 10% fall in the value of the dollar versus the pound has undermined profits in Barclays large US investment bank – which could have provided some insulation against the interest rate pressure.


“None of that matters all that much right now though, a huge swing in credit impairments has swept all before it in these results. And that’s likely to be a theme for the rest of the year. So long as the economic outlook continues to improve Barclays results will look rosier.”


Next off the rank is Lloyds tomorrow, followed by Natwest on Friday and HSBC (LSE:HSBA) the following week.


Lloyd is tipped to be yielding 4.7% or so by the end of the year and the same one third/two-third ratio as Barclays implies an interim dividend of around 0.7p.

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