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When it comes to FTSE 100 dividend stocks, Barclays (LSE: BARC) is one I wanted to consider. I wanted to dive into this strong performing Footsie stock, with its strong track record in UK banking and a renewed focus on shareholder returns, as a potential option for income.
Share price gains
The company’s share price is up over 80% in the past year, climbing to 314.4p as I write on 3 March. This rally has been driven by solid earnings, significant cost-cutting efforts, and a focus on returning capital to shareholders.
In its latest results, the bank reported a 23% increase in third-quarter profits to £1.6bn. Higher interest rates and a robust loan book, as well as strong investment banking division performance, all played their part.
A new £1bn buyback announced in February 2025 is the latest step in a plan to return £10bn to shareholders over two years.
Valuation
Barclays currently offers an annual dividend yield of 2.8%. The bank declared a total dividend of 8.4p per share for 2024, up from 8p the year prior.
That’s not the highest yield in the FTSE 100, and is actually below the 3.5% average for the UK large-cap index. However, the payout is well supported by earnings with dividend cover of 4.3 times.
On the valuation front, I thought I’d take a look at a couple of common metrics to size up the bank versus the market and its peers.
Barclays trades on a price-to-earnings (P/E) ratio of 8.5, which is below the FTSE 100 average of around 17. However, financial services companies do tend to trade at lower multiples. For example, NatWest and Lloyds are trading at P/E ratios of 8.7 and 11, respectively.
One key valuation metrics for banks it the price-to-book (P/B) ratio, which stands at 0.6 for Barclays. This means the bank’s shares are trading below their book value on the balance sheet.
The bank does look cheaper than Natwest (0.95) and Lloyds (0.91), which are both closer to par. This could make Barclays a steal, or reflect some of the uncertainty around the transformation programme underway.
Weighing it up
Barclays has been on a fantastic run and has a lot going for it as a FTSE 100 dividend stock. A steady increase in its dividend in recent years, as well as a commitment to returning money to shareholders, has helped boost valuations higher.
Both the P/E and P/B ratios are encouraging. However, there is still plenty of uncertainty.
Interest rates appear to be headed lower, which could impact the bank’s net interest income as it fights to keep deposits high and its lending margins could be squeezed.
There is also the ever-present threat of an economic downturn, which might increase default rates and non-performing loans.
Volatility in financial services stocks is one reason I’ve decided not to Barclays shares right now. Given the current state of the economy, I’d rather look at more defensive sectors like pharmaceuticals for the time being.
