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The last 12 months have seen shares in Barclays (LSE: BARC) rise 10%. And in terms of value stocks, the financial powerhouse is one of my favourite picks.
However, despite its rise, 2023 has seen its shares fall by over 5%. But now with a price-to-earnings ratio of just four, I’m keeping a very close eye on it. While I already own the stock, if I had some spare cash, I’d be tempted to snap up some more shares. What’s more, I’d hold them for a decade.
Here’s why.
Barclays Performance
So, what’s been influencing the Barclays share price of late?
Well, it’s not been the best year for banking stocks. Volatility has run rife in the sector, fuelled largely by the collapse of Silicon Valley Bank earlier this year. While the UK subsidiary of the US outfit eventually got snapped up by Barclays’ competitor HSBC for £1, the days that followed the collapse saw the Barclays share price slide 12%.
On top of this, red-hot inflation and the aggressive interest rate hikes that have followed suit have also dampened investor confidence.
A double-edged sword
With that, it’s easy to see the negative impacts of the current macro environment. However, it’s not all doom and gloom. There are some benefits.
We can see this with Barclays and, more specifically, with its net interest income. For the second quarter of 2023, this rose 19% year on year, as higher interest rates allow the bank to charge customers more when borrowing. As a result, this helped group income jump 6% to over £6bn.
Passive income
As I continue to build my investment pot, I’m also keen to buy stocks that provide high dividend yields so I can create streams of passive income for the years ahead. And Barclays fits that bill.
As I write, the stock yields around 5%, which sits above the average of its FTSE 100 peers. With a new share buyback scheme announced in its latest results, this is a further positive sign.
Of course, while its yield is an attraction, I’m wary that dividends can be reduced or cut by a business at any time. However, with it covered over four times by earnings, I’m confident of it paying out.
The risks
There are some risks, of course. While Barclays’ diversification offers it an edge over its competitors, it also has its drawbacks. This is largely seen with its US operations and its investment arm, which has suffered in recent times. Furthermore, while its benefited from rising interest rates, this can also lead to higher defaults, which can harm the bank’s income.
I’d still buy
Volatility in the months ahead as inflation continues to bite is only to be expected. And I foresee this continuing into 2024. However, I’m happy to hold on. As a long-term investment, I’m a big fan of Barclays. Currently, I see an undervalued stock with potential to rise in the years ahead. The passive income should also tide me over for the time being.
If I have some spare cash in the weeks ahead, I’ll be looking to add to my position.
