3 Things That Say Banco Santander SA Is A Buy

Banco Santander SA (LON: BNC) looks like one of the strongest banks around.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

SantanderWhen we’re looking at the banking sector, it’s easy to forget that the FTSE 100 is home to more than the usual British-based banks.

Take Banco Santander (LSE: BNC) (NYSE: SAN.US), for example — it’s share price has soared by 24% over the past 12 months to 592p, compared to a flat FTSE. Are the shares worth buying now? Here are three reasons why they just might be:

1. Falling dividend

Yes, in this case, a falling dividend is good news!

Banco Santander has been paying out absurdly high dividend yields that were nowhere near covered by earnings — 8.8% last year and 9.7% the year before. It could do that because most people took scrip, so the cash wasn’t actually needed. But that brings about constant dilution of earnings per share, so every new share you take now means less money coming your way for each of your existing shares.

Thankfully the Spanish giant is moving towards a more sustainable dividend model, and this year is forecast to yield only 7.4%, dropping to 6.6% in 2015. Even then, the payout will be barely covered, but the direction is the right one — I’d hope to see a sustainable 4.5% to 5% within a few years (at today’s share price).

2. Low valuation

Santander shares are on a forward P/E of 12, dropping as low as 10 based on 2015 predictions, even after the last year’s price rise. For a bank in good health, that looks too low to me. Not many analysts concur, admittedly, with a majority sitting on a Hold stance (and of the rest, the Sells outweigh the Buys). But I think a lot of that is due to the current dividend model making valuation hard to work out, and adding significant uncertainty to expectations.

But they are pretty firm on their predictions of at least 20% EPS growth for each of the next two years.

3. Euro crisis over

Banco Santander is the eurozone’s biggest bank by market cap, and the euro crisis was not good for it — to put it mildly.

But the blighted currency union has survived, and is recovering more strongly than many of us had feared. Spanish debt has moved on from its pariah status too, with lenders apparently trusting the Spanish government more and demanding considerably lower bond yields than during the crisis.

The whole eurozone economy is still struggling, but it really doesn’t look like it’s going to collapse now — and Santander should benefit from the recovery that is surely coming.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »