The Barclays (LSE: BARC) share price has been one of the biggest climbers in the FTSE 100 this year, soaring 72% since the start of January.
I want to invest a bit more in the financial sector in early 2025. Right now, I think NatWest Group probably has the edge. But Barclays runs a close second, and things could easily change by the time I’m ready to buy.
More to come
Analysts are still very bullish over Barclays, putting out one of the strongest ‘buy’ ratings I can see on the FTSE 100 right now.
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They have a modest share price target rise on the cards, of 9% to 288.5p. But that’s based on the 12 months ahead, and earnings forecasts continue positive beyond that.
We’re looking at a forecast price-to-earnings (P/E) ratio of 7.5 this year, dropping to 5.5 by 2026 if forecasts come good. And if they do, the current price target could turn out to look somewhat unambitious.
One thing that might turn me off is a dividend forecast to yield just 3.3% this year, and only 3.8% by 2026. That’s mostly what puts NatWest ahead in my estimation at the moment, with its 6% yield expected in 2026.
Solid outlook
While Barclays’ isn’t the biggest dividend yield in the sector, the bank does aim to return more cash to shareholders in the coming years.
At Q3 time, it spoke of a “plan to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, with a continued preference for buybacks“.
That’s worth more than a quarter of Barclays entire market capitalisation. And I definitely prefer shorter-term returns like this to go via buybacks rather than, say, special dividends.
But what might get in the way of these upbeat hopes?
Not plain sailing
There’s still a number of potential hurdles in the road ahead.
Falling interest rates should cut into lending margins. And Barclays is exposed to US rates too, via its international banking arm. Still, any regulatory relaxations by the incoming Trump administration might help.
Also, those forecasts for this year and the next two might look good. But when’s the last time we can remember banking forecasts going as planned, without interruption, for three years in a row? I’m not sure I’ve ever seen it.
Change afoot
Barclays has been through change in the past year. It’s brought in some cost cutting and refocused on key business aspects. That should be good in the long term, but it does bring uncertainty to the party.
And, despite my love of buybacks, I do think the relatively low Barclays’ dividend yield could drive investors to others in the sector. The dividend is, after all, one of the headline measures that strike us first.
So will Barclays be my top banking choice for early 2025? On these thoughts, probably not. But a lot could happen between now and then.
