Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Barclays PLC (LON:BARC) has paid a dividend to shareholders. It currently yields 1.7%. Let’s dig deeper into whether Barclays should have a place in your portfolio.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Barclays fare?
Barclays has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Not only have dividend payouts from Barclays fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Compared to its peers, Barclays produces a yield of 1.7%, which is on the low-side for Banks stocks.
After digging a little deeper into Barclays’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for BARC’s future growth? Take a look at our free research report of analyst consensus for BARC’s outlook.
- Valuation: What is BARC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BARC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.