Over the past three- and five-year periods, the company’s performance isn’t much better either. Including dividends received, over the former, the stock has produced an annual return of 5.6% for investors, and over the latter, it’s lost an average of 6.7% per year.

What’s more, investors who have been patient enough to hold the Santander share price for a decade, have seen virtually no return on their money. Over that period, the stock has produced an average annual return for shareholders 0.3%, compared to a return of 9.5% for the FTSE 100.

To put it another way, since 2009, the business has underperformed the UK’s leading stock index by a staggering 9.2% per annum, even when including dividends to investors.

What’s happened?

This lacklustre performance suggests Santander’s growth has ground to a halt over the past decade, but that’s just not the case.

According to my research, over the past six years, the bank’s net profit has increased at an average annual rate of 13.3%, and earnings per share have nearly doubled from around €0.27 to €0.49. City analysts are expecting Santander to report earnings per share of €0.51 for 2019. Based on this target, the bank is trading at a forward P/E of 7.9, and it offers a dividend yield of 5.8%.

Its share price looks cheap on other metrics as well. For example, it’s trading at a price to tangible book ratio of just as 0.96. Technically, any company that’s achieving a healthy level of profitability should trade at or above tangible book value per share.

The question is, why is the market placing such a low multiple on this highly profitable, growing business?

It seems to me investors are just generally avoiding the European banking sector in general as they’ve been a poor investment since the financial crisis. Ultra-low interest rates have crippled their ability to earn healthy profits, and rising levels of bad debts have forced many of the continent’s largest banks to ask shareholders for more funds.

Fundraising

Santander hasn’t been immune from these pressures. In 2017, the company asked shareholders for €7bn to sort out Banco Popular’s finances after acquiring its domestic rival for the symbolic price of €1 the same year. Despite the capital raise, this deal has been a net positive for the bank and its investors. In Spain, its second-biggest market, net profit jumped 28% to €1.5bn during 2018 as its transformation of Popular started to yield results.

The integration is still progressing with Santander announcing today it has paid €937m to acquire the remaining 60% of Allianz Popular, the joint venture between global insurance giant Allianz and Popular. The combined business been selling insurance to the bank’s customers since 2011 and accounted for around 10% of Allianz’s overall gross written premiums in Spain.

Despite the price tag, I think this could be an excellent deal for Santander as it grows its presence in the company’s home market. I also believe this is yet another sign the stock is undervalued at current levels and could be worth your research time if you’re looking to add an undervalued income play to your portfolio.

The post The Santander share price has crashed: here’s what I’d do now appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves owns no share mentioned. 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.

However, one area where the bank disappoints is its lack of growth. While the group recently reported a healthy 18% year-on-year increase in profits for 2018, analysts are expecting a more subdued performance going forward. The City has pencilled in earnings per share growth of just 3.6% for 2019.

So while I still believe that the Santander share price presents incredible value for investors and income seekers, I think growth investors will be disappointed. 

With this being the case, I’m considering the outlook for UK fintech startup Funding Circle (LSE: FCH) instead.

Explosive growth

Compared to Funding Circle, Santander looks as if it’s standing still. Today, the peer-to-peer lender reported a 55% year-on-year increase in revenues to £142m which, according to CEO Samir Desai, is another “record-breaking year for the firm.“

However, while revenues hit a record, pre-tax losses also surged, climbing 40% from £36.3m to £50.7m.

Looking forward, management expects this trend to continue. It’s forecasting more revenue growth, but losses are expected to continue for the foreseeable future.

Funding Circle’s management thinks revenues will rise above £200m in 2019, and adjusted operating losses will fall, with the firm remaining loss-making overall. City analysts have pencilled in a net loss of £32m for 2019, a slight improvement on 2018’s figures, although this is based on revenues of £199m.

As the company now expects to beat this top line estimate, I wouldn’t be surprised if we see a number of analysts revisit and reduce their loss estimates for the group this year over the next few weeks.

Different companies 

At first glance, Santander and Funding Circle couldn’t be more different. Santander is one of the largest established banks in Europe that earned €7.8bn in net profits last year. Funding Circle is still losing money and in its early stages of growth.

But despite its losses, I think Funding Circle could be the better long-term buy. One of the reasons why the company is losing so much money is because it’s reinvesting 41% of revenues back into marketing and building the brand. Over time, this marketing spend should fall as the business’s customer base grows.

Indeed, according to the company, in 2018 43% of group revenues came from existing customers, up 67% year-on-year, while 74% of lending also came from existing investors. As existing borrowers and investors are cheaper to acquire, (the cost is virtually zero) Funding Circle makes the bulk of its income matching these lenders and borrowers.

What I’m really excited about is the firm’s potential around the world. Last year, it only generated revenues of £48m from its US and international operations. This is just a snip of these multi-trillion pound lending and borrowing markets. So the opportunity for Funding Circle in these markets is tremendous and, if the enterprise gets it right, the sky’s the limit for the firm’s growth.

So overall, if you own Santander and are you’re wondering what to do with your investment, I reckon it could be worth selling a small percentage of your holding and investing the proceeds in Funding Circle today.

The post This is what I’d do about the Santander share price right now appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves owns no share mentioned. 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.

Instead of relying on the cash ISA, I would invest a portion of my savings in Santander (LSE: BNC).

Buying growth

In my opinion, the Santander share price has plenty going for it. For a start, at the time of writing, shares in the bank support a market-beating dividend yield of 5%. What’s more, I think the stock looks cheap right now as the shares are dealing at a forward P/E of only 8.5.

It’s difficult to understand why investors are not flocking to buy this stand-out financial enterprise. Usually, investors reward banks with a low multiple if there’s something that doesn’t look right on the balance sheet, such as rising loan defaults, or a poor capital ratio. However, I can’t see anything wrong with the group’s most recent set of results. 

Earlier this week, Santander reported an 18% year-on-year increase in profits for 2018, to a total of €7.8bn. Net interest income grew 5.3% to €9.1bn, the non-performing loan ratio declined from 3.9% to 3.7% in the fourth quarter, and is down 164 basis points since June 2017. At the end of 2018, Santander’s tier one capital ratio was a healthy 11.3%, above its own target of 11%.

Some analysts have questioned whether these results are as good as they seem because there were some hidden nasties in the numbers. For example, Santander was only able to grow profit in some regions due to cost reductions. 

These concerns are valid, but I don’t see them as a risk to the entire investment thesis. The group is trying to cut costs and improve its digital offering, which is generally cheaper to operate. According to Santander’s own numbers, a third of its products sales are currently made through digital channels and the number of digital customers increased by 6.6m to 32m during 2018.

Brexit worries 

So, financially at least, it looks as if Santander is a great investment. One thing that I think could be holding the share price back at the moment is Santander’s exposure to the UK and European economies, where a dark cloud in the form of Brexit is hanging over economic growth. 

A no-deal divorce will almost certainly impact the bank’s profitability. However, Santander is better positioned than most European financial institutions because more than a quarter of its profits are generated in Brazil. This exposure also helped the group escape the worst of the financial crisis, and I think it could provide a backstop once again in 2019 if Europe’s economy grinds to a halt or starts to contract.

As the Santander share price is currently trading at discount valuation, I believe the risk of a messy Brexit is already reflected in the bank’s share price. And with that being the case, I’m a buyer of the shares today because not only does the Santander stock offer a market-beating dividend yield, but there’s also the potential for significant capital gains if the business continues to grow in 2019 and defies its doubters. 

The post Still relying on cash ISA? I think the Santander share price is a better buy appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves does not own any share mentioned. 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.

Beating the competition

Did you know, for example, that shares in Santander (LSE: BNC) were nowhere near as badly hit as the UK’s troubled-three in the worst of the financial crisis? Barclays, the one that did not need to go cap-in-hand to the government for a bailout, lost 90% of its valuation between January 2007 and the crisis low of March 2009. And the two taxpayer-saved ones did a bit worse — Lloyds shares lost 92%, while Royal Bank of Scotland lost 96%.

But Santander got away with a fall of just 61% — still a big loss, but not quite the same catastrophe. In fact, Santander shares performed only marginally worse than those of HSBC Holdings, which was largely protected from the Western-focused crunch by its business being mostly in Asia. HSBC fell 55%.

And to bring that right up to date, Santander shares are now 57% down, after the whole sector was hit by the shock of the UK’s Brexit vote. But that’s still significantly ahead of the other big fallers, with Barclays still down 74%, Lloyds on an 84% drop, and RBS still crushed by 96%. HSBC, largely unaffected by Brexit, is now down only 16% since before the banking crisis.

One of the best dividends

Even if you’d lost 55% from Santander shares since 2007, you’d have enjoyed some impressive dividends, which would have made up for it. Santander had a policy of paying big dividends, which weren’t close to being covered by earnings, and it managed that because of a tradition in its home market of Spain for shareholders to take scrip dividends instead of cash.

What that meant was the depressed share price had pushed dividend yields to around 9%, still as recently as 2014. That’s when the competing FTSE casualties were all slashing their dividends in order to shore up their balance sheets (with the honourable exception of HSBC, which was still paying good money).

Even now that Santander has brought its dividend policy into line with convention and cover by earnings is good, the low share price still puts expected yields at over 5%.

More highly valued

Another thing I note about the Santander share price is that it’s really only a little higher, compared to forecast earnings, than its three troubled sector fellows. Santander’s forward P/E stands at just over nine, very close to RBS’s valuation. Only Lloyds falls significantly lower, with a forecast P/E of under eight.

What does that say to me? For one thing, I think the whole sector is undervalued. Comparing to HSBC’s forward P/E of 11.6, it does seem to be Brexit that’s holding them back. But does Santander face the same risks as Lloyds, Barclays and RBS? I don’t think so.

The post 3 things you don’t know about the Santander share price appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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.

As Santander is a big dividend payer (the shares currently yield a market-beating 5.5%), I think it is only fair to judge the company’s performance on its total return, which includes dividends paid. On this basis, the stock is down 18% over the past 12 months.

Slowing growth 

It’s quite clear why investors have turned their back on the company. At the beginning of 2018, analysts were expecting a near 10% increase in earnings per share (EPS) for 2018. However, as the year has progressed, growth estimates have been revised steadily lower. Now, the City is forecasting growth of just 2.9%.

As my Foolish colleague, Roland Head noted last week, one explanation as to why analysts have soured on the business over the past 12 months is higher US interest rates. I believe the group’s struggling UK business is another contributing factor. According to the company, earnings at its UK arm fell by 16% in the first half of 2018 as costs rose and revenues declined. 

Still, I’m generally bullish on Santander’s prospects because of its international diversification. Just under half of the group’s profits come from South America, with the rest coming from the UK, US and Europe. Even though earnings may be volatile in the short term, over the long term, I believe this should help Santander continue to stand out from UK-focused peers.

Today, you can buy shares in the international banking giant for just 8.2 times forward earnings, which looks cheap to me, even though analysts are not projecting much in the way of growth for 2018. 

Having said all of the above, however, I’m not buying Santander today because I believe FTSE 100 dividend champion Sage (LSE: SGE) might offer more value. 

The accounting software provider’s reputation has been left in tatters after two profit warnings this year and the sacking of its CEO. These issues have taken their toll on the company’s share price. After jumping to a high of 821p — a level not seen since the dotcom bubble — shares in Sage have since cratered to 582p, a decline of 29%. 

Sticky income 

Shares in Sage look interesting to me, not because they are particularly cheap, but because of the sticky nature of the company’s business model. 

Having used several different versions of accounting software, I know how difficult it can be to switch providers. Users generally avoid changing because of the work involved. This is Sage’s most attractive quality as an investment. Revenues from its cloud accounting software give it a steady, regular, predictable cash flow

With this stream of income, it’s no surprise the company has earned itself a reputation as one of the FTSE 100’s most reliable income stocks. Over the past six years, the payout has risen approximately 60%, and analysts are expecting growth to average 7% per annum for the next two years. 

The payout is covered twice by EPS, so there’s plenty of headroom for dividend growth despite the firm’s profit problems. Granted, the stock isn’t cheap, changing hands at 16.3 times forward earnings, but this is below the IT sector average of 20.2 and is, in my opinion, a suitable price worth paying to get your hands on Sage’s sticky income stream.

The post Why I’d ignore the Santander share price and buy this FTSE 100 dividend stock instead appeared first on The Twelfth Magpie.

More reading

• Forget SpaceX shares! I’d rather buy these FTSE 100 growth heroes
• 2 beaten-down FTSE 100 bargains I’m tipping to rebound!
• How have Sage shares become a dividend machine? 5 reasons why!
• 2 beaten-down stocks I’m tempted to buy for my ISA today
• Down 33%, is there a once-in-a-decade chance to buy this quality FTSE 100 stock?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Sage Group. 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.

The bank used to pay dividends way in excess of earnings, and got away with it because a sizeable proportion of its Spanish shareholders used to take scrip instead of cash — but that was just diluting the value of the shares, and I saw no sense in it.

But since Ana Botín took the helm from her late father in 2014, the bank has moved to a more conventional approach and slashed its dividends to amounts sustainable from earnings. Forecast yields are now in the 4.1% to 4.4% range, and more than twice covered by earnings.

Strong start to 2018

And after viewing the latest results from Europe’s largest bank by market capitalisation, I’m convinced that its shares are looking good value now, and could beat the best of the FTSE 100‘s banks over the next year or two.

Santander posted an impressive set of first-quarter figures Tuesday, headlined by a 10% rise in profits for the period, to €2,054m. Excluding currency movements, the constant-euro equivalent soared by 22%, buoyed by strong growth in Brazil, Spain and Mexico and by an improving performance in the US.

Business in the UK didn’t do so well, with bad loans and increased regulatory costs adding to the financial burden, but to me that highlights what is ultimately Santander’s key strength — its global reach. But it does come with two edges.

When the rest of us were in the grip of the financial crisis, Santander had the likes of the upcoming economy of Brazil to help ameliorate the pain — though that country’s more recent slowdown subsequently acted as a bit of a drag. Still, Brazil is coming good again, with a 7% rise in attributable profit to €677m and loans growing faster than the market average.

And a turnaround in the USA is very welcome. A 2014 dividend payment that was in violation of American stress test restrictions led to a ban on further redistribution of cash, but that was lifted in late 2017, which the bank sees as being a turning point.

In its home market of Spain, a 26% rise took profit to €455m, with Santander’s acquisition of failing rival Banco Popular for just €1 apparently paying off as its integration proceeds on schedule.

Strengthening recovery

The share price plummeted from the latter half of 2014, reaching a five-year low in February 2016. But since then, we’ve been seeing a serious improvement in sentiment as the recovery has gathered momentum. With the shares trading back above the 470p level, we’re actually looking at a pretty much flat five-year performance.

That might seem disappointing compared to the FTSE 100’s 14% growth, but five years of decent dividends have provided an overall return of better than 30%. And I reckon we could be in for a Footsie-beating performance in the next few years.

At today’s price levels, predictions suggest a forward P/E multiple of approximately 10.8, and I reckon we could see an uprating of forecasts in the light of these Q1 figures — and the mooted 9% rise in EPS for the year could turn out even better.

The 11% boost to earnings pencilled in for 2019 would drop that ratio to only 9.7 — and we still have dividend yields in excess of 4% to look forward to.

The post Is the Santander share price set to trounce the FTSE 100 this year? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Alan Oscroft has no position in any of the shares mentioned. 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.

However, as we head into 2018, I believe that it could be time to snap up shares in this struggling retailer as its recovery plan starts to gain traction. 

Making headway 

Next year will be the first full year Archie Norman holds the chairman’s position. Mr Norman took over the chairmanship at the end of the summer and has been getting to know the business ever since. 

He is best known for rescuing supermarket group Asda from bankruptcy, and the City has high hopes for his time at the UK’s largest clothing retailer. The big question investors will be asking, is if he has what it takes to return M&S to growth, after more than a decade of disappointments? 

I believe that this will become clear next year. There are already some signs that the business is improving (clothing revenue stopped falling in the six months to September 30, and full-price sales increased 5.3%), giving him a tailwind to help turn the business in the right direction. Considering his record, I think he will make some substantial positive changes to M&S in the months ahead, which should benefit shareholders. 

Investors will be paid to wait for this turnaround as shares in M&S currently support a dividend yield of just under 6%. The payout is covered 1.5 times by earnings per share so, despite the group’s problems, it looks as if there’s headroom to keep the distribution in place. 

Never made a loss 

European banks have a bad reputation, but Banco Santander (LSE: BNC) does not deserve to be tarred with the same brush. Unlike its European peers, Santander has not made a loss in over 100 years. The conservatively run bank is well diversified across many different markets, and despite being headquartered in Spain, that country only accounts for 12% (based on 2016 figures) of group profit. 

To help boost growth, in June, it acquired Banco Popular for the symbolic price of €1 after EU authorities declared the Madrid-based lender “failing or likely to fail.” To help fund the deal, Santander raised an additional €7.1bn of capital.

City analysts expect this deal to help boost earnings by 13% for 2018, giving earnings per share of 45.8p. Based on these estimates, shares in the bank are currently trading at a P/E of around 11. To me, this valuation seems cheap especially when you consider the fact that Santander is probably the best run bank in Europe.

If the company hits City growth targets in 2018, a re-rating could be on the cards. The shares offer a dividend yield of 3.7% while you wait. 

The post 2 turnaround stocks I’d buy before 2018 appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended boohoo.com. 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.

Santander shares have risen by 55% over the last 12 months, and today’s full-year figures suggest that the outlook is continuing to improve. Customer numbers rose by 1.4m to 15.2m last year, while lending increased by 2% and customer deposits climbed 5%.

The underlying quality of Santander’s assets also appears to be improving. The bank’s Common Equity Tier 1 (CET1) ratio rose by 0.5% to 10.55% last year. The rate of non-performing loans fell to 3.93%, down from 4.36% one year ago.

Is Santander still a buy?

Unlike some of the large UK banks, Santander shares don’t trade at a discount to their tangible book value. With the shares at 460p, the stock has a price/tangible book ratio of 1.3. For deep value investors, it’s probably not of interest.

However, if you’re looking for businesses with rising profits, an affordable valuation and an attractive dividend yield, I believe it could have something to offer.

The latest forecasts suggest that the bank’s earnings per share will rise by 6% to €0.45 in 2017. The dividend is expected to rise to €0.21 per share. These figures give the stock a 2017 forecast P/E of 12 and a prospective yield of 3.9%.

In my view, Santander could be an attractive income buy at these levels.

A more exciting alternative?

Santander is one of the world’s largest banks, with a market cap of £65bn. Its share price is unlikely to rise by 55% again this year.

However, one bank whose shares could rise by 50% is challenger firm OneSavings Bank (LSE: OSB). This small outfit has a market cap of just £785m, but has fast-growing earnings and an undemanding valuation.

For example, its underlying pre-tax profit rose by 36% to £64.6m during the first half of last year. The group’s loan book grew by 10%, while its CET1 ratio rose from 11.6% to 13.3%.

Its small size helps keep costs low. The bank reported a cost-to-income ratio of 27% in its most recent results. By way of comparison, the equivalent figure for Santander is 48%. Most big UK banks are much higher still.

One risk is that the small size of challenger banks such as OneSavings will end up limiting their ability to expand and compete against the established players. So far there’s no sign of this, but it’s something to watch.

In the meantime, it looks quite cheap to me. The bank’s earnings per share are expected to rise by 13% to 39.7p this year, putting the stock on a forecast P/E of just 8.1. The dividend is expected to rise by 15% to 10p per share, giving a prospective yield of 3.1%.

I’m tempted to take a closer look, and would be happy to buy at current levels.

The post Is Banco Santander SA an income buy after profits rise 4%? appeared first on The Twelfth Magpie.

More reading

• Here’s how much someone would need in a Stocks and Shares ISA to make £740 a month
• 6.8% yields! 2 UK shares to consider for a Stocks and Shares ISA?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Yet one perfectly decent category of stocks is in danger of being left out by all of this: solid FTSE 100 companies with relatively lowly yields either side of 3%. The following three companies all fit into this category. Should you be investing in them?

AstraZeneca

Pharmaceuticals giant AstraZeneca (LSE: AZN) currently yields 3.76%, roughly the same as the FTSE 100, and a stonking return compared to cash. However, the real action has been in share price growth since Brexit, with the stock up 20% in the last three months. The collapse in the pound has been a key driver, pushing up the value of its overseas earnings once converted back into sterling. This is no short-term share price burst, the stock is up 83% over five years, against 27% for the FTSE 100 as a whole.

AstraZeneca has been hit as a number of key drugs have come off patent in recent years, notably Crestor in the US. Product sales fell 2% in the first half and investors are putting their faith in chief executive Pascal Soriot’s long-term plans to revive the company’s drug pipeline through a new generation of blockbusters, which he hopes would boost revenues from last year’s $26bn to more than $45bn. That’s an enticing prospect but AstraZeneca isn’t cheap at 15.22 times earnings and with earnings per share (EPS) forecast to fall 3% both this year and next, it could be an anxious wait. The dividend just about rewards investors for their bravery and patience.

Diageo

Investors in spirits giant Diageo (LSE: DGE) have endured a tepid three years following the departure of go-for-growth chief executive Paul Walsh, but now it seems to have recovered its flow. The Smirnoff, Guinness and Baileys producer’s share price is up a heady 30% over the past year, although its yield – never the biggest – is a watery 2.67%. Chief executive Ivan Menezes is talking up growth prospects, including a “stronger” performance in 2017, as it looks to beef up its marketing, innovation and commercialisation of products.

This is fighting talk and is backed by positive forecasts suggesting a 15% leap in EPS in the year to 30 June. An emerging markets revival would be an even bigger kicker. But the low yield combined with its high valuation of almost 25 times earnings takes off some of the edge.

Banco Santander

Perhaps this isn’t the best time to be bigging up European banks, given the crisis afflicting Deutsche Bank in Germany. Profits at Banco Santander (LSE: BNC) have been hit by the cost of closing branches and cutting jobs in Spain, where its lending business is under pressure. Brexit has also cast a cloud, with the bank warning that it marks the end of the recent relative stability in the UK banking sector.

The Bank of England’s rate-cutting spree is hitting profits on both mortgages and savings, and it has been forced to cut the perks on its popular 123 account. Trading at 8.62 times earnings many of these problems are priced-in, and a yield of 3.26% isn’t bad. However, it looks like Banco Santander is in for a bumpy ride.

The post Do these 3 low yielders offer high growth prospects? appeared first on The Twelfth Magpie.

More reading

• Newsflash: the Diageo share price just climbed!
• Which British dividend shares could supercharge a passive income portfolio in 2026?
• Down 14% to below £135, here’s where AstraZeneca’s deeply undervalued share price ‘should’ be trading today
• Has the turnaround finally started for Diageo shares?
• The top 3 FTSE shares for beginner investors to consider buying in 2026

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

So, when trying to choose a bank for your portfolio, simplicity is the name of the game.

Simple is best

Even though investors might be attracted to Standard Chartered (LSE: STAN) for its emerging market exposure, the bank is an incredibly complex beast to understand.

You see, over the past decade, Standard Chartered has adopted a growth at any price mentality, which means the bank’s balance sheet is now full of questionable loans, something the new management team is trying to sort out. But even if the bank does manage to clean up its balance sheet, there’s still a bigger issue affecting the group.

Standard Chartered is an Asia-focused bank, and the organisation’s success depends on the health of China’s economy along with that of its regional peers. In other words, if China’s economic growth stumbles Standard Chartered will feel the pain. Many City analysts have already expressed concern about the state Standard Chartered’s balance sheet, and the bank could find itself high and dry if China’s economy hits the rocks.

Cloudy outlook

Like Standard Chartered, Santander (LSE: BNC) also has an extensive exposure to a country with a cloudy economic outlook.

Santander generates more than a third of its profits in Brazil, a country which is currently grappling with a severe economic slump and rising inflation. During the past two calendar quarters, Brazil’s economy has shrunk at a rate that has wiped out several years of economic growth — bad news for a bank like Santander, which has such a large exposure to the country.

Still, outside Brazil Santander’s operations are growing steadily. Spain’s economy is recovering, Santander’s UK operations are a jewel in the group’s crown, and Santander US is operating in line with peers.

That being said, if Brazil continues to deteriorate at its current pace, Santander is going to have plenty of problems to control.

A top pick 

Compared to Standard Chartered and Santander, Virgin Money (LSE: VM) is an incredibly simple bank with bright prospects the growth. For this reason, Virgin Money is my pick in the banking sector.

While other bank stocks may offer more regarding income or even growth, Virgin Money’s simplicity and the bank’s popularity with customers are two traits that are difficult to find anywhere else in the sector.

Virgin Money currently trades at an extremely attractive forward P/E of 11.3 and City analysts expect the bank’s earnings per share to expand by 40% this year and then a further 31% during 2017. If the bank manages to make these forecasts, Virgin Money’s earnings per share will have doubled in the short space of three years — it’s worth paying a premium for that kind of growth.

The post Which is the best bank for you: Banco Santander SA, Standard Chartered plc or Virgin Money Holdings (UK) plc? appeared first on The Twelfth Magpie.

More reading

• Down 7% to around £19! Is now the time for investors to consider this FTSE 100 banking giant’s deeply-undervalued shares?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.