Barclays promises dividend income boost

A dividend surprise for Barclays (LSE:BARC) shareholders after the lender pledged to increase this year’s total distribution by 66% to £2 billion today, helped shares meet a high bar.

The promised income boost came as Barclays also set out targets up until 2028, including a three-year plan to return at least £15 billion via dividends and share buybacks.

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This figure compares with at least £10 billion between 2024 and 2026, when the preferred method for the return of capital has been through share buybacks.

The total figure in today’s 2025 results rose by 23% on the previous year to £3.7 billion, including through £2.5 billion of buybacks. The £1.2 billion dividend represented a total payout 2% higher at 8.6p a share, including 5.6p a share for distribution on 31 March.

However, Barclays wrong-footed the City by announcing that it intended to lift 2026’s dividend outlay to £2 billion. This implies a rise in the total dividend payout to about 15p a share, much better than City expectations for a figure of about 10p a share.

The distribution is dependent on board approval, the delivery of the bank’s anticipated financial performance and a capital buffer ratio within the 13-14% range.

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Analysts at Jefferies said they were slightly surprised by the move as they had expected Barclays to maintain the £1.2 billion target and double the dividend in the following year.

The City bank described the targets for 2028 as both ambitious and helpful after Barclays said it was looking to deliver a return on tangible equity (RoTE) greater than 14%. This compared with the City consensus forecast of 13.5%.

The key industry metric, which is post-tax profit divided by tangible equity, improved to 8.5% in the fourth quarter and to 11.3% for the year as a whole.

All five divisions achieved a double-digit RoTE in 2025 as Barclays issued a target of greater than 12% for this year.

The longer-term objectives are underpinned by structural hedges, which have been used to smooth out interest rate volatility. Jefferies said these continued tailwinds should contribute about half of the expected £4.5 billion income growth up until 2028.

The plan for distributions of at least £15 billion missed the City consensus of £16.8 billion, but this provides the bank with flexibility in the event of acquisition opportunities.

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The shares dipped 10.1p to 476.5p, having risen by about 60% in the past year. The decline came even though fourth-quarter profits came in 8% higher than expected at £1.9 billion, representing a 12% rise on a year earlier and resulting in a 2025 total of £9.1 billion.

Shore Capital said Barclays was its favoured play among the UK large-cap banks.

It said: “Overall, this is a positive update with an encouraging outlook that we expect to be taken well by the market.”

While the shares have re-rated significantly, Shore said the current multiple of 1.2 times tangible net asset value left scope for further modest expansion if the group can deliver on its medium-term RoTE ambition.

Bank of America has a price target of 530p, while Jefferies is at 560p and UBS at 570p.