With Barclays’ share price rising, £2k invested over the past 5 years is worth this

The forecasts look good Barclays (LSE:BARC) and the banking giant’s share price fell sharply.

City analysts expect average wages to rise about 9% this year and about 18% by 2025.

However, those expected improvements come after a decline in earnings and operating cash flow in 2023. Welcome to the world of cyclical businesses where earnings, cash flows, dividends and share prices can provide investors with a volatile long-term journey.

A mixed bag of investment results

Cyclicality in the banking sector is the biggest risk shareholders face when investing in Barclays shares. It can be easy to make an investment mistake and end up losing money.

But the result after investing £2,000 in stock five years ago would have been good. At the time, the price was around 171p and today (6 November) it is 256p, as I write.

Therefore, the profit on the stock’s rise would have been 85p per share. However, there were benefits to be reaped along the way as well. The company has paid 25.15p per share over the past five years.

That means the total return per share was around 110.15p, or around 64%. So a £2k investment will now be worth around £3,280 – not bad!

However, investors who choose to invest in the past year will have done better with a total return of 94%. A £2k investment made in November 2023 will now be worth £3,880 – that’s even better, and with a shorter holding period!

Investing in a cycle can turn conventional investment thinking upside down. For example, holding stocks for a longer period of time can often improve an investor’s chance of higher returns. But that’s not necessarily true of cyclicals.

For example, £2k invested in Barclays shares over the past 10 years would have delivered the worst return performance for these examples. The shareholder would have received dividends worth 48.75p per share and seen the stock price improve by just 20p. So that’s a paltry 68.75p return or just 29% – an unsatisfactory result for a 10-year commitment, I’d argue.

The focus is on revenue recovery

As I see things now, the chances of a negative outcome are higher for new shareholders because the share price is higher. Business cycles tend to ebb and flow over time, and that means we may see further volatility in trading ahead.

However, many shareholders will have bought the shares to receive dividends because the company usually shows a good yield.

Looking ahead, Barclays says it plans to make a comeback “at least” £10bn of capital for shareholders between 2024 and 2026. That will be done through stock dividends and share buybacks. However, the company chooses to buy back.

The company expects to keep the total budget stable at the 2023 level “completely”with continued dividend-per-share growth driven by a reduction in share price as it buys back shares.

Currently, the forward dividend yield to 2025 works out to just over 3.6%. However, that equation seems to be stretching it a bit. If banks yield at least 5%, the income helps compensate shareholders for the cyclical risk of holding their stock.

Therefore, I would expect more ups and downs in the future of the stock price than a constant upswing.