Even though the RBS (LSE: RBS) share price has risen in the last few months, it is still down by over 6% in the last year. Investor sentiment towards the part-nationalised bank continues to be weak, with its valuation suggesting that it could offer good value for money.
Furthermore, the bank has plans to raise dividends rapidly over the medium term. Alongside another cheap stock that released results on Wednesday, now could be the right time to buy it.
Improving prospects
The stock in question is gold miner Centamin (LSE: CEY). Its first-quarter results showed that it beat production expectations, recording production of 116,183 ounces of gold versus a forecast of between 105,000 and 115,000 ounces. The company has also delivered further operational improvements in the open pit and underground, while its costs are trending towards the lower end of its annual guidance.
Centamin has reiterated its guidance for 2019, with gold production expected to be between 490,000 and 520,000 ounces. Cash costs are forecast to be between $675 and $725 per ounce. This is due to lead to a rise in earnings of 20% versus the previous year.
With the stock trading on a price-to-earnings (P/E) ratio of around 10, it seems to me to offer good value for money. Since the pace of interest rate rises in the US may be slower than previously expected due to mixed economic data, and there being continued risks facing the world economy, the gold price may enjoy a tailwind over the medium term. As such, gold miners may become increasingly popular among investors, which could lead to higher returns for their shareholders.
Low valuation
As mentioned, the last year has been challenging for the RBS share price. Uncertainty regarding the prospects for the UK economy has meant that investors have been increasingly cautious towards the bank’s shares, despite continued improvements in its performance.
Evidence of the improving outlook for the business can be seen in its plans to raise dividends at a rapid pace over the medium term. Having recommenced dividends last year after a hiatus following the financial crisis, RBS is expected to increase them by 130% in the current year. This puts it on a forward dividend yield of 4.9%, while dividend cover of 2.2 suggests that there is scope for further growth in shareholder payouts over the long run.
Although the operating environment may remain uncertain for RBS, its bottom line is due to rise by 5% in the current year. Given that it trades on a P/E ratio of just 9, it could offer good value for money when compared to a number of its FTSE 100 index peers. Therefore, while there may be some way to go until it returns to full health after what has been a challenging decade, its long-term prospects could continue to improve.
