Barclays plc is forecast to raise its dividend by 111% in 2018

Barclays (LSE: BARC) shocked the market back in 2016 when it announced that it would be slashing its dividend by over 50%, in an effort to bolster its capital reserves. After four consecutive payouts of 6.5p per share between 2012 and 2015, the FTSE 100 bank took an axe to its distribution, reducing the 2016 dividend to a low 3p per share. For 2017, the payout was identical at 3p per share, an underwhelming yield of just 1.5% at the current share price.

While two consecutive payouts of 3p per share have no doubt been disappointing for shareholders, especially those who invest for income, there is finally some good news regarding Barclays’ dividend. In its full-year results released in February, the bank advised that it plans to increase its payout for FY2018.

Dividend hike

Barclays stated in February that it “understands the importance” of the ordinary dividend to its shareholders and that it “anticipates” resuming a total cash dividend of 6.5p per share for 2018, subject to regulatory approvals. The bank noted that it is committed to maintaining an appropriate balance between total cash returns to shareholders, investment in the business and a strong capital position, but also said that it intends to supplement the ordinary dividend with additional returns to shareholders “as and when appropriate.”

CEO James E Staley added: “I am confident in the capacity of this business to generate excess capital going forward, and it remains our intention over time to return a greater proportion of that excess capital to shareholders through dividends.”

This is clearly good news for investors. A 6.5p per share payout equates to a yield of 3.2% at the current share price, which, while not as high as the prospective yields on offer from other FTSE 100 banks such as Lloyds and HSBC (which both have forecast yields of 5.5%), is definitely better than the current yield. Furthermore, ‘additional returns’ sound promising.

Do City analysts believe that Barclays can execute on its dividend promises? Let’s take a look at the current dividend forecasts.

Dividend forecasts

The City has been been quick to adjust its dividend forecasts for Barclays since the bank released its results. According to Stockopedia, analysts currently expect a dividend of 6.34p per share from Barclays in 2018 (an upgrade of 15% over the last month), followed by a payout of 8.24p per share in 2019. So it appears that analysts definitely think that dividend growth is on the cards.

However, it’s worth noting that analysts’ forecasts can occasionally be way off the mark, especially if a stock lacks a nice consistent dividend track record. For example, analysts were expecting a FY2017 payout of around 4.1p per share for Lloyds in January, yet the bank announced a dividend of 3.05p per share instead, opting to return cash via a £1bn share buyback.

So while it does look likely that Barclays will raise its dividend in coming years, I wouldn’t rely on analysts’ forecasts for now.