Saturday, 5 April 2014

BUY: Barclays...Buying for Future Dividends and Growth

Price: 245.38
Shares: 200
Projected annual dividend income: £13 (this purchase) and £26 (entire holding)

I have recently topped up my Barclays investment. I first invested back in January 2014 seeing it as a strong candidate for the medium and long term with a relatively solid and hopefully growing dividend yield.

Barclays has become a favourite amongst stock pickers with many declaring it a buy or strong buy. These declarations did catch my eye, but it was the underlying figures which really hit me and encouraged me to top up my holding (it now amounts to almost a fifth of my entire portfolio).

However, with a drop in the price again--offering a chance to average down--along with my continued interest in their African banking move I felt another purchase was in order.

P/E Predictions Look Excellent

Firstly, the forward P/E ratios seem to me very attractive. The consensus EPS for 2014 leaves us with a ratio of 9.82--nicely under the bargain 10 figure. However, the range provided by analysts is a little worrying standing at about 105% difference:

EPSP/E Ratio
Difference (%)104.90

Does this worry me? Not really. I would expect banks to still have very wide predictions considering the delicate economic environment we are still in. What is more, even at the lowest estimate for next year we have a P/E prediction of 15.59. Maybe not a bargain. But not overpriced either yet.

What is more, 2015 looks very nice indeed:

EPSP/E Ratio
Difference (%)62.70

Firstly, the analysts appear to be in greater agreement as to the potential EPS range (62% difference as opposed to 105% for 2014). What is more, here the lowest predicted EPS leaves us with a P/E of just a little over 10. That looks superb value to me.

Dividend Growth and Cover is Encouraging

With regards dividends Barclays looks very sound indeed. Analysts expect a solid dividend growth for 2014 and 2015 with it heading towards 8.26p and 11.54p per share. That is a yield of 3.36% and 4.69%.

What is more, these dividends appears very well covered by earnings. Even using the lowest EPS estimates noted above this provides 1.91 times cover for 2014 and 2.09 times cover for 2015. This is nicely around the perfect 2 times earnings cover for dividends. This also heralds well for future dividend growth in the future.

Book to Market Ratio Healthy Too

Barclays also has a very nice 1.38 Book to Market ratio which is nicely above the 1 threshold which indicates good value. This is encouraging for future capital gains to the shares and clearly shows that the banking sector is looked upon poorly by many still. 

Long or Medium Hold?

I have no idea whether Barclays is likely to be a long or medium hold stock. Banks still seem to me to have huge value at the moment. However, I dislike the idea of having them--especially an individual one--as such a large part of my portfolio. However, looking long term I think they will be very important to my portfolio. But in the medium term I may be interested in selling a fairly large part of my Barclays holding when the price is right in order to direct the funds and (hopefully) profits towards non-banking shares.

What do you think?

What do other Barclays holders think? Are you stocking up to hold long term or just for the short/medium term or a bit of both?

[Creative Commons image reproduced from Flickr user Nick Page (nicksie2008)]

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