I took one of my regular looks at Barclays(LSE: BARC) this week, and I'm still surprised at the low (and falling) valuation of its shares.
The price was recovering from its Brexit referendum crash, but since February it's been heading down again... if you'd bought then, you'd be down nearly 20%.
With a 39% rise in earnings per share (EPS) forecast for this year, followed by another 23% next, that price fall puts the shares on forward P/E multiples of only 10.6 this year, and 8.6 next, way below the long-term FTSE 100 average of around 14.
The problem really can't be the dividend. Though there's only a 2017 yield of 1.6% yield forecast, 2018 should see that jump to 3.4%. And with the bank having been focusing on cost-reduction, efficiency, and strengthening its balance sheet in the years since the financial crisis, I can see that just being the start of a renewed long-term progressive stream of payouts. After all, that expected 2018 dividend would be covered 3.4 times by forecast earnings.
The trouble is, Barclays is still dealing with a lot of legacy issues. Selling off its African operations resulted in a write down, PPI claims haven't gone away quite yet, and various regulatory bodies are still expected to bring further actions against the bank.
The restructuring into a squeaky-clean operation is slower than expected, but liquidity is enormously stronger now, and I really do think that long-term investors are heading for blue skies with Barclays.
At around today's 193p, I'd buy.
An unmissable 8%?
While established FTSE 100 companies are often the best dividend bets, there are plenty of very attractive smaller-cap offerings too. I was drawn to Elegant Hotels Group(LSE: EHG) a few months ago when I saw some pretty reasonable interim results.
Since then the share price has fallen a little, but it picked up 10% on Thursday as the operator of "seven upscale freehold hotels and a beachfront restaurant" in Barbados gave us a trading update.
Trading has continued as expected, but current bookings are coming in ahead of the same period last year, and the firm's new Treasure Beach hotel is due to open in time for peak season; the company bought the property in May this year and has been in the process of refurbishing it for a more upmarket clientele since.
Elegant's business model of acquisition and repositioning looks like a potentially very profitable one to me. Upmarket tourists don't really feel the economic squeeze the way most do, and there are higher margins to be had from them.
Growth plus dividends
Though Elegant Hotels is still very much in its growth phase (having floated on AIM as recently as May 2015) it has firmly established its intention of becoming a long-term cash cow for its shareholders by posting big dividends.
Last year brought a 7.4% yield, with forecasts suggesting 8.3% this year and next. That means 2018's payment would be covered around 1.3 times by forecast earnings. But with modest net debt and a net asset value per share of 98p (with the shares at 88p), I don't see that as too stretching.
The full year, with results due on 9 January, is expected to show a fall in EPS, but growth on the cards for next year would drop the P/E multiple to a modest 9.6.
An overlooked bargain, I reckon.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.