This FTSE 100 8%+ dividend stock looks a much better buy than Barclays’ share price

Royston Wild considers a big-cap beauty with superior investment prospects to Barclays plc (LON: BARC).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As the economic stormclouds in the UK grow ever darker, my take on FTSE 100 banking giant Barclays (LSE: BARC) is becoming less and less optimistic.

In this climate, City brokers have also been downgrading their earnings estimates since I last covered the stock in late March, a development that has come as no surprise to me as the dashboard of the British economy has moved from amber to red.

And the chaotic political situation in the UK looks set to keep the squeeze on economic conditions. Whether it’s the prospect of a confused and protracted exit from the European Union, or a so-called Hard Brexit that would have catastrophic long-term consequences for the country, I’m not expecting the trading environment to get any better for the likes of Barclays.

Should you invest £1,000 in Ishares Vii Public - Ishares Core S&p 500 Ucits Etf right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ishares Vii Public - Ishares Core S&p 500 Ucits Etf made the list?

See the 6 stocks

Unlike Lloyds, Barclays can at least claim exposure to foreign climes to help it mitigate these troubles, its recent restructuring allowing it to sharpen its focus on the much-stronger US economy. Still, measures to build a transatlantic banking titan are unlikely to stop earnings growth stalling as its home market struggles along. And as a side note, I’m not convinced that Barclays’ withdrawal from the bright emerging markets of Africa makes long-term sense either.

Some may claim that the bank’s forward P/E ratio of 10.1 times reflects these difficulties. I would disagree however, and fully expect City forecasts — like Barclays’ share price — to slide lower in the months ahead.

Dividend estimates look shaky

That said, many income chasers may still be attracted to the bank in the hope of impressive dividend expansion.

City analysts certainly believe Barclays has what it takes to meet its target of paying a 6.5p per share dividend in 2018, up from 3p last year. What’s more, they predict that the reward will rise again next year to 8.2p. Consequently the financial giant sports bulky yields of 3.3% and 4.1% for 2018 and 2019 respectively.

However, the prospect of disappointing revenues growth causes me to doubt whether Barclays will have what it takes to dole out generous dividend hikes in the medium term or further out. And my pessimistic opinion is reinforced by Barclays’ weakening balance sheet (its CET1 ratio slipped to 12.7% in March from 13.3% three months earlier) and the prospect of toughening Bank of England capital stress tests.

A superior income selection

Those scouring the Footsie index for bright dividend stocks would be better served by checking out Direct Line Insurance Group (LSE: DLG) instead, in my opinion.

Indeed, the total reward expected for 2018 at the insurer is put at 30.9p, creating a monster 8.7% yield that blows Barclays’ corresponding reading clean out of the water. While a smaller 29.3p payment is predicted by City analysts for next year, this still yields a formidable 8.2%.

And like the beleaguered bank, Direct Line can also be picked up on a mega-cheap earnings multiple today, the company trading on a forward P/E ratio of just 11.4 times. This low valuation reflects the increasing competitive pressures the motor insurer is facing, but I would argue that it also undermines the fact that demand is still soaring across all of its product lines. In my opinion the business is worth a close look today.

Should you invest £1,000 in Ishares Vii Public - Ishares Core S&p 500 Ucits Etf right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ishares Vii Public - Ishares Core S&p 500 Ucits Etf made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Were you born before 1972?

No matter what year you were born in, this special report is well worth a look.

It’s called: ‘5 Shares for Trying to Build Wealth after 50’. And it’s yours, absolutely FREE.

At The Motley Fool, we believe it’s never too late to build wealth with shares. Indeed, despite the current global upheaval, this may be an ideal time to start. Our analyst team have crunched the numbers. This free report brings you up to speed.

See the 5 stocks

More on Investing Articles

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Could the ‘Pepsi Paradox’ make this FTSE 100 stock a buy?

Scientists have a theory as to why Coca-Cola is the world’s number one soft drink. But is this good enough…

Read more »

Investing Articles

Is the share price slump of this FTSE 250 defence stock a warning sign for others?

Despite an increased focus on defence spending, the QinetiQ Group share price fell heavily on 17 March. Our writer takes…

Read more »

Investing Articles

Will the FTSE 100 follow the S&P 500’s 10% correction? I don’t think so, and here’s why

As the S&P 500 suffers a painful spell, I consider how much FTSE 100 stock market investors here in the…

Read more »

Investing Articles

Warren Buffett’s Berkshire Hathaway stock is surging… here’s why

Concerns about US exceptionalism and a significant holding in falling Apple aren’t holding Berkshire Hathaway stock back. Dr James Fox…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Where could IAG shares go in the next 12 months? Here’s what the experts say!

After a stunning 129% rally, IAG shares have started to nosedive in recent weeks. Analysts are divided over the future…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The Eurasia Mining (EUA) share price is up 181% this year! What’s going on?

The Eurasia Mining (LSE:EUA) share price has had a simply stunning 2025 so far. What's going on -- and is…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

Is this the FTSE 100’s best dividend share?

Christopher Ruane weighs some pros and cons of a high-yield FTSE 100 share he believes investors should consider for their…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Down 27% in 3 days! Should I buy the dip in this FTSE 250 defence stock?

This FTSE stock has collapsed in recent days, leaving this Fool wondering if he's looking at a buying opportunity for…

Read more »