Banco Santander (LSE:BNC) shares have been on fire in recent times. In fact, anyone who ploughed £7,500 into the Spanish bank just three years ago would now have roughly £25,500 before dividends.
That’s obviously a cracking result for shareholders. What has sent Santander flying? And might there still be room left in the tank for more tasty gains?
Three key reasons
Looking back, this bumper return is the result of higher interest rates, aggressive cost-cutting, and massive capital returns to shareholders.
Higher rates mean Santander has benefited from wider margins — charging more for loans while keeping deposit costs relatively low. In 2025, net profit rose 12% to €14.1bn (16% in constant euros), marking the bank’s fourth consecutive year of record results.
In the past three years, Santander has reduced its cost-to-income ratio from 45.8% to 41.2%. This shows the bank is becoming more leaner and efficient, particularly through using artificial intelligence (AI).
By 2028, the bank expects to generate more than €1 billion of business value annually (cost savings plus revenues) from data and AI initiatives, contributing around 1 percentage point of the group’s cost-to-income improvement.
Santander 2026 Investor Day
In terms of shareholder returns, Santander has aggressively ramped these up. Once a €5bn share buyback announced in February is completed, the lender will have repurchased around 18% of its outstanding shares since 2021.
Reducing the share count on this scale is shareholder-friendly in a number of ways:
- Each remaining share now represents a larger percentage of the bank’s total assets and future earnings
- Earnings per share (EPS) is usually boosted
- Constant buying pressure can support the share price
- Buybacks can boost the dividend per share
Taken together, higher interest rates, record profits, rising dividends, and massive buybacks have lit a fire under the stock.
Some risks to remember
Looking ahead, it’s unrealistic to expect another 200%+ share price surge. Interest rates should settle or even come down a bit, potentially weakening the net interest margin somewhat.
Meanwhile, a price-to-tangible-book ratio of 1.7 isn’t low, and the forecast dividend yield of 3.1% isn’t as high as many other bank stocks around today.
Then there’s the potential for a global recession, sparked by food inflation and higher energy costs. This could increase the bank’s operating costs while dampening lending activity.
Is the stock still worth checking out?
Having said all that, I’m still quite bullish on the bank stock, especially after the recent investor day presentation.
By 2028, Santander aims to reach more than 210m customers, up from 165m in 2023. It has made key acquisitions in the UK (TSB) and the US (Webster Financial), and continues to grow its presence in Latin America (where tens of millions remain unbanked or underbanked).
Other 2028 targets include achieving a profit of more than €20bn and double-digit EPS growth every year till then. The lender also plans to more than double the cash dividend per share versus 2025 levels by shifting more of the payout ratio from buybacks to dividends.
So, while Stander is unlikely to repeat the heroics of the past three years anytime soon, I do still think it’s worth looking at right now.
