Barclays Deflated7 May 2019 16:20
When Anthony Jenkins was CEO the dividend was 6.5p per year and the share price was above £3. Things were being turned around for Barclays but there was a dispute at Board Level around what they should be doing with the investment bank. Anthony Jenkins lost that dispute when the new chairman joined who incidentally promised to double the share price whilst bringing in the current CEO - Jes Staley.
The next thing to happen was Barclays cut the dividend by more than 50%. In fairness the dividend at the time wasn't being paid out of profit, it was being paid from the banks reserves so it could be argued that was a sensible move for the bank. This put downward pressure on the share price - and we've not seen that level since.
Then the Brexit vote happened, and not wanting to start a conversation on Brexit; the share price in all companies crashed significantly, especially with the banks. This has led to constant pressure on the share price. So anyone who said the shares would soon be back above £3 before these two key things happened should be forgiven. There was no indication the dividend would be cut (having only been restored in the previous few years) and the Brexit result was also a surprise. At the time, to claim the shares would be back above £3 was reasonable in my point of view.
The other pressure on the shares is that since Jes has been there they have being diluting the shares consistently. They had a scrip dividend running whereby any dividend taken as shares has been paid by issuing new shares. The more shares in issue the less they are worth.
Since then, the bank has restored its balance sheet. It can now pay dividends from profit and is expected to raise the dividend to 8.5p this year. In addition, they are going to stop the share dilution and actually put that in reverse by doing share buybacks. All major litigation and legacy issues for Barclays are in the past. PPI is due to finish in August and these should have a positive impact on the share price, pushing it towards £2 and above as the year progresses. There will be eyes on the performance of the investment bank so don't take my word for it but these shares are cheap.
As we move through the rest of this year we may see some clarity on the future of Brexit. For UK Banks this is the biggest thing. If interest rates rise again, as they are expected to, then this is also positive for banks. The banks first quarter results were a good set of results. The bank is in a healthy position and I'm confident they will be able to continue to raise the dividend over the next few years regardless of some of the current unknowns. I think that those people who've invested long here can still be rewarded for their patience if they've invested at any level post the credit crunch. There is light at the end of the tunnel.
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