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It’s funny to think Barclays (LSE: BARC) shares were changing hands for just 80p a few years ago. During the panic of the pandemic, one of the FTSE 100‘s leading banks briefly dropped into the realm of penny shares. Crazy stuff.
Since then, it’s been win after win for the Blue Eagle bank. The share price is up 496% since 2020 and is threatening to surpass the £5 mark for the first time since that awkward financial thing that happened in 2008. And the stars might be aligning for that mark to be left in the dust too…
When talking about the recent success of the banking sector, it’s hard not to talk about interest rates. That’s because higher rates mean bigger margins for banks. It’s true that when they’re too high this causes defaults which is a problem too. But the last few years have been in something of a sweet spot around the 4%-5% mark.
One interesting detail however: some of the other ‘big four’ banks haven’t surged in quite the same way. HSBC, with its China focus, is up 297% since 2020. The more UK-focused Lloyds is up 280%. So why is Barclays blowing them out of the water?
In a word: America. Barclays has a large investment arm and US consumer bank division. Its exposure across the Atlantic means it’s dealing with an economy that has grown at a staggering 4.4% (on the latest annualised data). That’s almost unheard of among developed countries in the modern day. Britain will be lucky to achieve 1% for the same period. The stronger the economy, the better the environment for banks.
There is a risk here too. The growing talk of an artificial intelligence bubble centred in the US poses a big threat to Barclays. While a catastrophe is far from certain, the warning signs are there, with high capital expenditure and low return on investment.
Last call?
Here’s another way Barclays is an outlier among the FTSE 100 banks – dividends. Compared to other banks offering 4%+ as a yield of late, the Barclays yield of just 1.78% looks rather paltry.
Why is that? Because Barclays prefers buybacks to dividends. This means cash is not returned directly to shareholders but used to take existing shares off the market in order to bump up the share price. Those looking for a steady stream of dividends to function as a passive income may wish to look elsewhere.
Back to the question then: is it last call for sub-£5 Barclays shares?
No one can say for sure, but between large rounds of buybacks and the bank’s exposure to the fast-growing economy of the US, I’d not be surprised. Crashes and corrections will always happen to bring shares of all kinds down to earth, but I think Barclays shares below a fiver might not be seen too much in the future. I’d call it one to consider.
