The UK banking sector’s enjoying a resurgence as hopes of interest rate cuts this year are rapidly dwindling. Top banks like NatWest and Lloyds are up 7% this past month, while Barclays leads the charge — up a huge 11%.
But among the crowd of big banks, I found a hidden gem – a FTSE 250 bank that’s not only performing well but boasts an attractive dividend yield.
Let’s dig into the details.
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A quick rundown
Bank of Georgia Group‘s (LSE: BGEO) listed on the London Stock Exchange (LSE) but headquartered in Tbilisi, Georgia. It operates via various subsidiaries, mainly the Bank of Georgia and the recently acquired Ameriabank in neighbouring Armenia.
The group recently started exploring new initiatives to accelerate the digitisation of the Georgian economy. While the adoption of digital banking’s still in its infancy, there’s a lot of potential for early investors. The group seems eager to get involved from the early stages.
What’s more, with the Georgian economy growing 6.8% last year, the group’s likely to benefit. It’s already up 37% in the past year and 193% over five years.
Strong dividend payer
As mentioned, the 5.3% dividend yield adds a lot of value to this stock. That’s a fair bit higher than the average on the FTSE 250, which is about 3.5%.
And it’s got the capital to cover payments, with payouts accounting for only 17% of earnings. That reduces the likelihood of any cuts in the immediate future. Still, dividends are never guaranteed.
The pandemic caused a brief pause in payments but since then they’ve been consistent and growing. Barring another pandemic or a similar economic crisis, I don’t expect any further interruptions.
Financials
In the latest Q1 earnings results released in May, it revealed a 21% increase in revenue and net income up 245%. Earnings per share (EPS) tripled from £1.87 to £6.70. That’s an improvement from its FY 2023 results in which EPS missed analyst expectations.
One area of concern is the balance sheet. The group has more debt than equity, pushing its debt-to-equity ratio up to 191.7%. As a bank, this isn’t too much of a concern but it also has a low allowance for bad loans. That could hurt the group’s share price if debtors default.
Crunching the numbers
The shares are up 167% in the past decade, delivering an annualised return of around 10%. If it continued at that rate, 100 shares could grow to £18,271 in 10 years, with dividends reinvested. At that point, it would pay dividends of £855 a year.
If I left it for a further 10 years, the compounding returns would balloon my investment to £76,572 — paying dividends of £3,590 a year, or £300 a month.
The risk is that past performance doesn’t guarantee future results. The past 10 years have been good for the group but things could change drastically in the next 10. It’s all very reliant on the performance of the Georgian economy.
I find the stock interesting and would like to research it further. For investors who feel confident in the country’s future, I think it’s a good option to consider. For now, I’ll keep an eye on the stock.
