Dividend Analysis - Barclays PLC (NYSE:BCS)
17 September 2007Two Dividends Matter readers (Carlton and Chris) have both requested that we have a look at an international bank by the name of Barclays PLC which trades on the NYSE under the symbol BCS.
Is this another wonderful business that will allow us to diversify internationally like Allied Irish Banks PLC (AIB)? Let’s have a look.
Company Profile:
From Yahoo Finance
Barclays PLC provides financial services worldwide. It offers retail and commercial banking, credit cards, investment banking, wealth management, and investment management services.
Market capitalization is $78.79B.
Company Fundamentals:
As is usual for financials, I was only able to find the return on invested capital for last year which came in at 13.61% and for the 5 year average ROIC which came in at 4.20%. That is definitely quite a difference!
Return on equity numbers have been very consistent throughout the 10 year period. The 10 year average ROE is 18.32%. The 5 year average ROE is 18.04%. So ROE has remained consistent but ROIC has had a massive jump.
Equity growth rate has remained fairly consistent in the 11% to 13% range. The 9 year rate is 13.09%. The 5 year rate dips to 11.9%. The 3 year rate drops to 7.59% thanks to a negative equity growth rate in 2005 of -10.74%. Last year’s equity growth rate was 28.58%.
Earnings per share growth rates have been increasing except for the hiccup caused in 2005. The 9 year rate is 14.48%. The 5 year rate increases to 18.5%. The 3 year rate drops to 14.69% (thanks to the -7.42% EPS growth rate in 2005). Last year’s EPS growth rate was 34.25%.
Sales growth rates have been increasing over the last 10 years. The 9 year rate is 13.97%. The 5 year rate increases to 21.07%. The 3 year rate remains at 23.33%. And last year’s sales growth rate was 35.34%.
The jump in ROIC demands further investigation but the rest of the fundamentals look good.
Dividend Fundamentals:
Current dividend yield is 5.35%. This is definitely higher than the S&P 500 Index dividend yield of 2.00% and the Dow Jones 30 Index of 2.37%. The dividend yield is also higher than other bank stocks such as Citigroup Inc (C) and Bank of America (BAC).
The dividend growth rate has been quite consistent over the years. The 9 year rate is 12.98%. The 5 year rate increases to 16.24%. The 3 year rate remains steady at 16.19%. However, last year’s rate dropped to 9.99%. Remember thought that this stock does have exposure to currency risk and that will affect your dividend growth rate. Of course, it works both ways. A falling US dollar will increase your dividend growth rate while a rising US dollar will decrease your dividend growth rate.
Dividend payout ratio has actually decreased over the last 10 years. Back in 1997, the payout ratio sat at 55.48%. As of 2006, the payout ratio was sitting at 41.91%.
Cash flow growth rate has been increasing. The 9 year rate is 13.96%. The 5 year rate increases to 16.08%. And last year’s cash flow growth rate was 35.81%.
The dividend fundamentals look good to me.
Valuation Models:
Let’s use our 3 models to determine a fair price for this stock.
Using our average high dividend yield model, we need to look at the historical dividend yields. The 10 year average high dividend yield is 4.87%. The 5 year average high dividend yield increases to 5.28%. Since we are currently at a dividend yield of 5.35%, you know this stock is trading at a slight discount.
If we demand 5.28% for our yield, then the model price works out to $48.85. At the current price of $48.15, this stock is trading at a slight discount of 1.43%.
Calculating a model price from our Graham number, the model price works out to $54.10. This is a discount of 11%! And, if I look at my Modified Graham number (which takes into account current interest rates of 5%), the number works out to $62.47.
Using my discounted present value method, I used the following inputs:
- future EPS growth rate of 11.9% (This was determined by looking at the 5 year equity growth rate. In fact, the analysts have forecast 12% but I will stick with my more conservative estimate.)
- future P/E of 8.79 (This is the current P/E and is well below the historical averages.)
- dividend yield of 5.28% (the 5 year average high dividend yield)
- future dividend growth rate of 9.99% (last year’s dividend growth rate which was below average increase.)
With this information, my model price worked out to $78.47. Unfortunately, at this price, I would not be receiving my 5.28% dividend yield. But it does show you how those 10% dividend growth rates really increase the future value.
Here is my dividend analysis of BCS.
Here is the 1 year stock price chart:
Conclusion:
The fundamentals look good. The dividend yield and growth rates are good. This stock does deserve a spot in our portfolio of superior dividend yielding stocks. And the stock seems to be trading at a fair price at the moment as well!
Now BCS is currently involved in talks with ABN Amro in the largest attempted takeover ever in the financial industry. However, it is competing against a rival consortium consisting of 3 banks (led by Royal Bank of Scotland PLC). This has caused part of the run up in stock price recently. If this takeover happens, it could throw off our historical trends. But I remain confident that either way, BCS will continue to be a member of our portfolio of superior dividend yielding stocks.
Full Disclosure: I do not own shares in BCS.
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on September 17th, 2007 at 11:31 am
What do you think of IRE?
on September 18th, 2007 at 10:44 am
New to the site - very informative. Thank you!
Question regarding Barclays:
Are you sure the dividend yield is that high (5.35%)? I’m seeing 3.9% ($1.88 / year), per Ameritrade. I know the Yahoo site shows a higher dividend ($2.99 / year), so I am a little confused. The company website indicates dividends are paid semi-yearly (not quarterly), so could this be the source of a misunderstanding on Yahoo’s part??
Any assistance greatly appreciated.
on September 18th, 2007 at 11:27 pm
That is an interesting observation Matt.
Using my data service, the current dividend is listed at $2.58. Looking at MSN Money, they have $1.88. Google Finance has a dividend of $0.94. And as you said, Yahoo Finance shows $2.99! No consensus!
Looking at Barclays investor site doesn’t help much considering that the data is in pence!
I do know that European stocks tend to pay an interim dividend and then a final dividend (and the final dividend can be higher than the interim dividend). Obviously issues of currency exchange would come into play as well. But I would not expect this type of variation based on currency.
Definitely a good question. Let me do a bit of research on this one.
on October 8th, 2007 at 8:24 am
I’ve answered my own question (seeing as you’re busy and all!
). The Bank of New York Mellon handles the ADR’s for Barclays, and they have the dividends from the last five years. The 2007 dividends payments (they pay semi-yearly) totaled a shade under 2.57 (2.5682 to be precise). Neither Yahoo nor Ameritrade were correct, it seems, though Yahoo was a little closer.
This number is still a healthy 4.75% yield on today’s price (54.04). The stock has been on a recovery of late, but I think the price still has a lot of room to grow.
on October 8th, 2007 at 9:50 pm
Thanks for the research Matt!
So it looks like my $2.58 dividend was pretty close.
One thing about fundamental analysis, you really have to trust your data source!
Thanks again for the info and bringing this discrepancy to light.