Earlier this month, major broker Jefferies reiterated its Buy rating on Barclays (LSE: BARC) shares, raising its price target to 590p.
The target is around 30% higher than today’s share price of around 453p.
Earlier this year, the bank pledged to return £15bn to shareholders as part of larger reshuffling strategy involving risk-weighted assets (RWAs) and capital reallocation.
But what does this mean for investors, and is it all good news?
How Barclays’ capital machine works
The new strategy is aimed at improving the bank’s income credentials, but could it impact long-term growth? To understand that, we need to look at how it all operates.
Think of the new strategy as a three-lever machine designed to free up cash for shareholders:
1. Capital returns
Barclays has committed to returning over £15bn to investors through buybacks and dividends. This cash comes from profits and assets the bank no longer needs in low-return businesses.
2. RWA reallocation
The bank’s shifting RWAs away from lower-return investment banking toward higher-return UK retail banking, consumer finance, and mortgages (including the Best Egg acquisition and Tesco Bank partnership).
3. AI-driven cost savings
It’s also investing in artificial intelligence (AI) and digital tools to cut costs, which should boost profits and free up more capital for dividends or buybacks.
These levers create three plausible paths for dividend investors between 2026 and 2028. Return on tangible equity (ROTE) measures how efficiently the bank generates profit from shareholder capital.
| Scenario | Focus | Dividend yield | Buybacks | ROTE target |
|---|---|---|---|---|
| Income-first | High returns | Higher near-term | Aggressive | 15%+ |
| Growth-reinvestment | Reinvest in retail | Moderate now, higher later | Slower | 17%+ |
| Balanced | Mix of both | Steady | Moderate | 16% |
So the question is, which scenario will materialise, and what are the risks?
What could go wrong?
Barclays faces several risks that could derail its plans:
- Regulatory capital pressure – If regulators demand more capital buffers, buybacks and dividend growth could be cut.
- Missed integration targets – Best Egg and Tesco Bank deals might not deliver expected profits on time.
- Slower investment banking fees – A weak IB recovery could reduce overall profits.
- Lower AI savings – If digital cost cuts underdeliver, profits and dividends suffer.
So how does Barclays stack up against other UK banks right now?
Fundamentals compared
The UK banking sector’s performing well and is expected to keep growing. And Barclays holds a strong position in terms of market sentiment, valuation, and growth potential.
Its large size and high liquidity also add value for investors who want a stable, tradable stock.
However, recent volatility and slowing momentum add risk. Barclays’ margins and profitability metrics are currently lower than most other UK banks, besides Lloyds.
It also has the lowest dividend yield of all UK banks, at 1.93%, but it compensates with the longest payment track record: 42 consecutive years of dividend payments.
The bottom line?
Barclays is no longer just a ‘cheap’ bank trade — it’s a capital-allocation test. Its dividend appeal depends on management sticking to its plan of returning capital while reshaping its book for higher returns.
It’s a compelling strategy, and one that’s certainly worth a closer look by investors crafting an income portfolio. However, it’s important to understand the risks and have faith in the RWA shift toward UK retail and consumer finance.
For investors simply chasing the highest yield today, other UK banks might be preferable to consider.
The real question is: do you want income now, or are you willing to wait for Barclays’ strategy to pay off?
Should you invest £5,000 in Barclays Plc right now?
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Mark Hartley owns shares in Lloyds Banking Group.
