Many top FTSE 100 companies are currently offering dividends well above the interest you can get from cash or bonds — and with the potential for real future income growth
In this series of articles, I’m assessing how some of your favourite blue chips measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of ‘Big Five’ bank Barclays (LSE: BARC) (NYSE: BCS.US).
Dividends past
The table below shows Barclays’ five-year earnings and dividend record.
| Â | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 59.3p | 86.2p | 30.4p | 25.1p | -8.5p |
| Dividend per share | 11.5p | 2.5p | 5.5p | 6.0p | 6.5p |
| Dividend growth | -66.2% | -78.3% | +120.0% | +9.1% | +8.3% |
Barclays’ shareholders saw a massive drop in their income during the financial crisis. The bank narrowly avoided the government bailout and mandatory dividend suspension of Lloyds and Royal Bank of Scotland.
Having been cut within an inch of its life, Barclays’ dividend bounced back 120% in 2010. Nevertheless, the payout remained way below the pre-crisis level of 34p.
Long-term shareholders have been obliged to survive on dividend crumbs through a period in which bolstering capital ratios has been the bank’s main priority.
Dividends present
Barclays has so far paid three quarterly dividends totaling 3p for 2013. At the same time, capital ratios have continued to be a thorn in management’s side. During October, we saw a £5.8bn rights issue to help plug a £12.8bn capital shortfall caused by new, tougher regulatory targets.
The analyst consensus is for a 2013 final dividend of 3.5p when the company announces its annual results on 21 February — that would give a full-year payout of 6.5p. Forecast EPS of 24p puts the dividend payout ratio at 27%.
At a share price of 292p, Barclays’ current-year dividend represents a yield of 2.2%.
Dividends yet to come
At the time of the rights issue, Barclays said: “Subject to meeting applicable minimum regulatory requirements, the Board expects to adopt a 40-50% dividend payout policy from 2014”. Previously, the medium-term target had been 30%.
The analyst consensus is for a 2014 dividend of 10.5p and EPS of getting on for 30p. Those numbers don’t quite add up because they give a payout ratio of 35% — below the range Barclays has guided on. Still, taking the forecast dividend of 10.5p at face value, the yield rises to 3.6% from the skinny 2.2% based on the 2013 payout.
For 2015, analysts have penciled in EPS growth of around 20%, but almost double that for the dividend. The forecasts imply a payout ratio of 40%.
Investors can be optimistic about a reasonable forward yield and super-strong dividend growth in the near term. Thereafter, I think growth should be decent if unspectacular, with bankers being careful to stay on the straight and narrow — at least for a generation or so!