To
day I am looking at why I believe Banco Santander (LSE: BNC) (NYSE: SAN.US) could prove a lucrative investment.
Here are 3 important numbers to bear in mind.
8.1
Although a dividend cut at Banco Santander is widely expected, I believe that the bank remains a terrific income pick despite predictions that the payout will be slashed to levels not seen since 2009.
With the bank seeking to create a healthier correlation between earnings and shareholder payouts, and consequently build a more sustainable policy and a stronger balance sheet, City analysts expect the business to cut the full-year dividend 5% to 57.3 euro cents per share this year. And an even heftier reduction, to 51.3 cents — an 11% decline — is pencilled in for 2015.
But investors should not lose sight of the fact that these projections still create some of the best yields around. Indeed, 2014’s predicted payment creates a gigantic 8.1% yield, more than double a forward average of 3.6% for the entire banking sector. And the yield remains elevated at 7.2% for 2015.
13.6
And Santander’s recent price weakness makes it not only a great value investment for income chasers, as predicted earnings expansion this year and next leaves the business dealing at appetising levels for growth investors, too.
A forecasted earnings improvement of 24% this year leaves the bank changing hands on a P/E readout of 13.6 times prospective earnings, comfortably below a forward average of 15.7 for the complete banking sector. And additional growth of 21% next year drives this figure to just 11.2 times.
As well, Santander’s tremendous value relative to its growth prospects are underlined by price to earnings to growth (PEG) readings of just 0.6 and 0.5 for 2014 and 2015 respectively. Any number below 1 is generally regarded as too good to ignore.
210 million
Santander has taken a shrewd approach to acquisitions in order to supplement its solid organic growth prospects.
Last month the business bought Canadian car financing provider Carfinco for €210m, one of the country’s biggest auto loan houses. With Carfinco’s products sold through 2,200 dealerships across Canada, Santander is now well positioned to latch onto surging car demand in the country — Royal Bank of Canada said last week it expects unit sales to breach 1.8 million for the first time in 2014.
Other recent M&A activity includes the purchase of the near-25% stake it did not hold in Banco Santander Brasil, boosting its exposure to South America’s hottest growth market. And with the bank’s balance sheet strengthening — Santander’s CET1 capital ratio came in at a healthy 11.8% during January-June, up from 11.6% in the corresponding period last year — I expect further acquisitions to occur in the near future.
