Suppose someone sidled up to you in a pub and whispered “‘Ere, guv, I know where I can get my hands on a share paying dividends of 5.2% for a P/E of only 7 — bung us a monkey and I’ll get you some“.
You’d run away, wouldn’t you? Well, he might actually be a stockbroker, because those are the odds you can get on Barclays (LSE: BARC) (NYSE: BCS.US) right now, based on forecasts for 2015 and on the current share price of around 255p.
Back to growth
Sure, those predictions are two years away, but even looking to this year we see the shares on a prospective P/E of under 9 with a dividend yield of 3.8%, and dividends are on the way up.
And that low valuation is all down to earnings growth — the City is predicting a 73% earnings per share (EPS) rise this year, followed by a further 22% in 2015.
2013 was bad
We had 2013 results from Barclays on 11 February, and they pretty much confirmed what everyone had expected — profits were down around a third after Barclays’ investment banking division had a bad year. Overall, adjusted pre-tax profit came in at £5.2bn, with a statutory recorded figure of £2.9bn.
There were plenty of reasons for the annus having been so horribilis, as Barclays has been undergoing some pretty expensive changes as it puts its old ways behind it and heads into a squeaky-clean future — at least, that’s the theory.
In the words of chief executive Antony Jenkins, large sums were consumed by “…withdrawing from certain lines of business, investing to transform our operations and resolving legacy conduct and litigation issues“.
Bottom passed?
We saw earnings per share of 16.7p, down 53% on 2012’s 35.5p, but the full-year dividend was lifted to 6.5p per share from 6p the previous year. That provided a yield of only 2.4%, but it was well covered and Barclays is still in the progress of building its dividends — and, as we’ve seen, they should be backed by great earnings growth.
Barclays shares are down nearly 15% over the past 12 months, while the FTSE 100 has put on around 7%, so are they cheap now? Well, the price had been rising as we’ve been emerging from recession, but enthusiasm seems to have waned for now.
Cheap growth?
Whether there are any fresh banking troubles ahead of us remains to be seen, but I’m seriously thinking of sticking that monkey on Barclays for the Fool’s Beginners Portfolio — though whether you think a two-year-out P/E of 7 is cheap for all that EPS growth, only you can decide.