The European banks’ stress tests are behind us and the big news was fortunately not a wave of bank failures but the announcement that 80% of European banks made the grade and will not have to raise new capital. Shares of the eurozone banks did not rise on the announcement the way many had expected, creating an opportunity in some bank shares.
Investors looking for great dividend stocks should consider owing shares of Spanish bank Banco Santander (SAN). The bank passed the stress tests with flying colors as a result of what CEO Ana Botin called “Santander’s low risk profile, based on a prudent risk policy, our geographic diversification and our retail and commercial business model focused on customers.”
Banco Santander gave a presentation at a Goldman Sachs conference a few months ago, and reading through it gives me the impression of a bank that is poised for several years of relatively strong profit growth.
The bank has emerged from the crisis in pretty good shape with enough liquidity and capital to now focus on growing the banks, and Santander appears to have a solid plan for doing so. The bank is already starting to see solid profit growth, and income was up 85% year-over-year in the most recent quarter.
Although there is a tendency to think of Spain when we think of Banco Santander, the company is really much more than that. The bank gets only 14% of its profits from its economically troubled home country. It operates in ten markets, all of which are at a different stage of recovery right now.
Santander’s home market is emerging from the crisis along with Portugal, while Brazil and Chile are slowing down at the moment. The U.K. and the U.S. have recovered from the crisis, and the Polish and Mexican markets are showing solid growth right now. All of these markets should experience tailwinds form low interest rates and improving credit conditions over the next few years.
Santander’s Smart Moves
Banco Santander is taking a smart approach to each of its markets. In emerging markets, the company is focusing on the rapidly emerging middle class, while in more mature economies it is focusing its efforts on developing profitable relationships in the affluent market. Mature markets tend to have a population that is growing older, so Santander is developing savings solutions to attract deposits from affluent retirees that have more assets than the middle class.
The bank appears to be in the right markets with the right approach, and I think it will grow faster than its global competitors for the next several years.
SAN stock is yielding 6.7% at the current price and is a great choice for investors looking to add dividend stocks to their portfolio.
True, there is some concern that SAN may cut the dividend, as Santander has maintained the payout during the tough times by offering shareholders the option of taking payments in cash. But the cash option has been popular with shareholders in the local Spanish market because the payout it is tax-exempt, and the CEI is committed to keeping the dividend arrangement, so I am not as concerned as some others.
Should the bank be forced into a position where it must cut the dividend to appease regulators, any resulting price decline could be an enormous buying opportunity.
This is a well-run bank with a solid plan to grow at above-average rates for the next several years. SAN stock is fairly cheap at 1.1 times book value and the yield is very attractive. If you’re looking for great dividend stocks, don’t pass up Banco Santander.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
