Here’s why the RBS share price could be heading for a recovery

Royal Bank of Scotland Group plc (LON: RBS) may be able to deliver an improving share price performance.

| 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.

With the RBS (LSE: RBS) share price having fallen by 12% since the start of the year, many investors may feel downbeat about the stock’s future prospects. It seems to be unable to spark investor interest, with a general feeling of doom-and-gloom still surrounding the bank due, in part, to its legacy issues.

However, the prospects for the company could be set to improve dramatically and could become a strong income stock over the medium term. Alongside another potential high-yielder that reported encouraging results on Friday, now could be the perfect time to buy the bank for the long run.

Outperformance

The stock releasing news on Friday was pub company Greene King (LSE: GNK). It was able to outperform the wider market over the summer with its like-for-like (LFL) sales rising by 2.8%, versus a 1.2% rise for the industry. This was made possible at least partly because of the company’s focus on efficiency, with it on target to overcome expected inflation costs of £45m-£50m. This could make it more competitive versus rivals at a time when the sector is experiencing an uncertain period due to declining consumer confidence.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

With Greene King’s share price having fallen by 16% in the last three months, it’s clearly an unpopular stock among investors. Its price-to-earnings (P/E) ratio of 8.5 suggests that it offers a wide margin of safety, though, and this could mean it has investment appeal despite the risks it faces from a difficult set of operating conditions. As such, and with the company having a dividend yield of 6.9% that’s covered 1.9 times by profit, the long-term recovery potential for the business seems to be high.

Improving outlook

The prospect of a successful turnaround of the RBS share price also seems to be high. The company’s financial outlook has improved so that it’s now expected to post a rise in earnings of 5% per annum in each of the next two years. This indicates that its strategy is gradually having a positive impact on its bottom line, with further growth likely in the coming years as it gradually moves on from the problems associated with the financial crisis.

The bank’s management seems to be confident in the outlook for the company. They’re expected to raise dividends significantly over the next couple of years, with the stock having a forward dividend yield of 5.2% for the 2019 financial year. With dividends expected to be covered 2.2 times by profit next year, there seems to be scope for a further rise over the medium term, which could act as a positive catalyst on the company’s share price.

With RBS having a P/E ratio of 10 at the present time, it seems to have a wide margin of safety versus a number of FTSE 100 peers. Although its share price may have disappointed in recent months, its long-term growth potential seems to be impressive.

However, don’t buy any shares just yet

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Secure your FREE copy

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.

Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

I bought 1,779 Legal & General shares 2 years ago – see how much dividend income I’ve got since

Harvey Jones holds Legal & General shares and has been pretty underwhelmed by their performance so far. The dividend is…

Read more »

Middle-aged black male working at home desk
Investing Articles

Is the FTSE 100 set to soar? Here are 3 ways to aim to cash in

My outlook for the FTSE 100 is definitely brightening as we get deeper into 2025. How can we make the…

Read more »

Investing Articles

£10k invested in NatWest shares on the ‘Liberation Day’ dip is today worth…

Harvey Jones looks at how NatWest shares have been knocked off course during recent market turbulence, but are now bouncing…

Read more »

Tariffs and Global Economic Supply Chains
US Stock

£5,000 invested in Nvidia stock just before the tariff news is now worth…

Jon Smith talks through the erratic movements in Nvidia stock over the past six weeks and reveals where an investor…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

3 high-yield passive income stocks to consider buying right now

These stocks with big dividend yields look very tempting. Passive income investors could do well to consider taking the plunge.

Read more »

Handsome young non-binary androgynous guy, wearing make up, chatting on his smartphone, carrying shopping bags.
Investing Articles

Is a motley collection of businesses holding back this FTSE 100 stock?

Andrew Mackie explains why he's remained loyal to this FTSE 100 stock despite several of its businesses continuing to struggle…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

3 top growth stocks driving wealth in my Stocks and Shares ISA

Our writer shines a light on a trio of outperforming growth firms in his Stocks and Shares ISA portfolio. They're…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s where analysts expect the Lloyds share price to be a year from now

The Lloyds share price has fared well so far in 2025. But with some big issues on the horizon, can…

Read more »