Today I am looking at whether Barclays (LSE: BARC) (NYSE: BCS.US) is an appealing pick for those seeking chunky dividend income.
Dividends expected to shoot higher
Even though the overhang of the 2008/2009 financial crisis has caused Barclays to experience significant earnings during the past five years, up until last year the firm managed to keep dividends rolling steadily higher. However, a colossal 56% earnings slip in 2013 prompted the firm to put the skids on its progressive policy and keep the full-year payout on hold at 6.5p per share.
Still, a backdrop of strong earnings expansion in the coming years — the City’s number crunchers expect the bank to punch growth of 63% and 24% during 2014 and 2015 respectively — is expected to prompt a resumption of the firm’s expansive payout policy.
Indeed, forecasts point to a massive 41% rise this year to 9.2p per share, with an additional 39% increase chalked in for 2015 to 12.8p. 2014’s projected dividend creates a yield of 3.7%, just above a forward average of 3.5% for the complete banking sector, and this blasts to 5.2% next year.
Restructuring drive boosting capital pile
With earnings predicted to stomp higher this year and next, Barclays carries meaty dividend coverage of 3 times forward earnings for 2014 — comfortably above the security watermark of 2 times or above — and 2.6 times for 2015.
Barclays announced in February that the £1.2bn cost of its Transform restructuring package last year was a major factor in the firm’s adjusted pre-tax income plummeting by almost a third, to £5.2bn.
But I believe that the company’s massive remodelling scheme should provide a significant boost to the firm’s capital base, a positive omen for income investors. The programme includes cutting thousands of jobs across the group, a huge downsizing of its investment bank, and a greater emphasis on technology to cotton onto changing consumer trends.
The firm is confident that this scheme can help lift its fully-loaded core tier 1 capital ratio to a respectable 10.5% by early next year, up from 9.3% at present, and the bank is looking to build this to between 11.5% and 12% in the coming years.
Boosted by recovering activity in its UK retail business, and its Barclaycard division delivering solid returns — not to mention signs of solid growth in the developing markets of Africa — I believe that Barclays is in great shape to deliver strong dividend growth over the long term.