Shares in Spanish financial giant Banco Santander (LSE: BNC) (NYSE: SAN.US) have endured a disastrous run so far in 2015, and the business is currently trading at a 17% discount to prices recorded at the start of January.
While much of the UK banking sector has got off to a bad start, investor appetite for Santander has taken a particular hammering after new chairperson Ana Botn introduced a share placement to shore up the firms capital base, as well as announcing plans to slash the dividend by much more than analysts had been expecting.
An appealing earnings and dividend pick
The effect of this double-whammy on stockholder nerves hardly comes as a surprise, but I remain convinced that Santander offers terrific value for money at these levels. The effect of significant restructuring at the firm is anticipated to deliver further splendid earnings growth in 2014, and a 20% advance is expected when the firm releases its results next week.
And City analysts expect the bottom line to keep on rolling higher in the coming years, with increases to the tune of 15% and 13% chalked in for 2015 and 2016 correspondingly. As a result, Santanders P/E multiple of 11.1 times prospective earnings this year moves to an even more delicious 9.7 times for 2016 a reading around or below 10 times is generally considered a steal.
While it is true that Santanders aggressive dividend rebasement has obliterated its previous appeal to income chasers, this does not mean that the bank is now a laggard in the payout stakes. Botn announced that the payment for 2015 will register at 20 euro cents per share, a colossal drop from the 60-cent payout afforded in previous years.
But this figure still produces a solid-if-unspectacular yield of 3.3%, and with the firms capital base shored up and earnings poised to rise higher, I believe that Santander will be well positioned to get payments trekking higher again from next year onwards.
Long-term picture remains promising
All is not plain sailing for the firm, however, particularly as economic conditions in its critical Latin American hub of Brazil continue to drag Santander sources around a fifth of group profits from this country alone, so news that Brazils central bank expects GDP to grow just 0.4% this year is troubling.
Still, the bank is pulling out all the stops to give its Brazilian unit a shot in the arm, and speculation is mounting that industry veteran Srgio Rial will be appointed chairman as chairman in the coming days. Santander Brasil is also ramping up its retail and corporate banking propositions, and this month made its first foray into the prepaid cards market by acquiring a 50% stake in digital platform Super.
The business is also well placed to ride the UK economic recovery, a country from which it also generates 20% of profits, and to a lesser extent the improving Spanish marketplace. Although Santander naturally remains exposed to deteriorating economic conditions in the eurozone, severe restructuring means the firm has limited exposure to the worst the region has to throw up.
But regardless of whether you share my enthusiastic take on Santander, I strongly recommend you check out this brand new and exclusive report that singles out even more FTSE 100 winners to really jump start your investment income.
Our “5 Dividend Winners To Retire On” wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays that we are convinced should continue to provide red-hot dividends. Click here to download the report — it’s 100% free and comes with no further obligation.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.