Investing in companies like Barclays (LSE:BARC) can be a rollercoaster ride. With analysts predicting a rise in normalised earnings by 9% this year and another 18% in 2025, the future looks promising. However, this optimism follows a period of declining earnings and cash flow in 2023, highlighting the cyclical nature of such businesses.
Here are some key points to consider when investing in Barclays:
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Cyclical Nature:
- Investing in Barclays shares comes with risks due to the cyclicality of the banking sector. Timing is crucial, as mistiming an investment could result in losses.
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Historical Performance:
- Despite the ups and downs, a £2,000 investment in Barclays five years ago would now be worth around £3,280, considering stock gains and dividends.
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Investment Length:
- Contrary to traditional investing beliefs, holding Barclays shares for longer periods may not necessarily guarantee higher returns, as seen in the performance over the last decade.
- Dividend Focus:
- Many investors are drawn to Barclays for its high dividend yield. The company plans to return capital to shareholders through dividends and buybacks, aiming for stable and progressive dividend growth.
Looking ahead, there may be more volatility in Barclays’ share price due to its cyclical nature. While the forward dividend yield for 2025 sits at 3.6%, investors might look for a yield closer to 5% to compensate for the inherent risks. Brace yourself for potential ups and downs in the journey ahead, rather than expecting consistent growth.
In conclusion, investing in cyclical businesses like Barclays requires a strategic approach, considering the fluctuations in earnings, cash flows, and dividends. While the future may hold uncertainties, staying informed and patient can help navigate the market’s twists and turns effectively.
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