£1,000 buys 212 Barclays shares. What is the profit and potential for price growth?
Currently, Barclays (LSE: BARC) trades at around £4.70 per share. Therefore, a person with a spare £1,000 to invest should be able to collect about 212 shares.
(In fact, it may be slightly less than the transaction fees, commissions, and stamp duty of £1,000. This is why it makes sense to choose carefully when choosing a brokerage account or a Stocks and Shares ISA).
However, sticking to 212 stocks as an example, what might that mean for an investor in terms of what he can get for his money?
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Low single digit profit growth
Currently, Barclays shares are 8.6%. Therefore, 212 shares should earn about £18.23 per year in dividends.
That’s a yield of about 1.8%. I don’t find that particularly exciting.
It’s not just that FTSE 100 the rate is significantly higher at 3.1%, but other UK listed banks also offer higher yields: Lloyds by 3.5% again Natwest at 5.3%, for example.
Barclays has been growing its dividends per share over the past few years. The latest full-year payout was about 2% higher than last year, for example.
If it maintains that modest annual growth, over the next five years, 212 Barclays shares should make around £97.65 a share.
Given the high yields available elsewhere in the banking sector, that profit opportunity alone does not tempt me to buy any Barclays shares in my portfolio.
Strong share price performance in recent years
So what about the opportunity to get a big profit?
Barclays shares have been strong performers in recent years. The price has gone up 194% in five years.
That’s better than the 170% achieved by Lloyds over the same period, but slightly behind the 209% achieved by Natwest over the same period.
Anyway, I would be very happy with any of those games! Barclays shareholders who bought five years ago and did nothing since then have almost tripled their money, even before taking dividends into account.
Too late to the party?
Past performance is not a guide to what will happen in the future.
The factors that underpin Barclays’ strong performance in recent years remain. The company has a strong product and operates in many markets.
Unlike retail-focused rivals such as Lloyds and Natwest, it has a large investment banking operation to complement its retail business. That can help boost profits when the economy is doing well, although it adds downside risks as demand for investment banking can quickly stagnate – and the wage bill for such work remains high.
Barclays’ bad debt charges last year rose, from £2bn to £2.3bn. If the global economy weakens amid continued global uncertainty, defaults could rise sharply, hurting profits.
That would make it difficult to justify the current valuation, which sits above book value. In a weak enough economy, I’ve seen stocks lose value relative to where they are now, as that price-to-book ratio falls and some book values are written down.
If, however, the business continues to perform well, the share price may continue to rise.
Given the uncertainty of the global economy and Barclays’ extensive international footprint, the balance of potential risks and rewards is not in my favor right now, so I have no investment plans.
