Already being battered by that dreaded combination of revenues stagnation and loan impairments, a perfect illustration of a rapidly-slowing domestic economy, things threaten to get even more troublesome if the UK ambles down the path of a destructive no-deal Brexit.

In recent days I explained why betting on Bank of Georgia may be a better choice in this climate for investors determined to grab a slice of the banking sector. But this is not the only financial giant I’d rather buy over Lloyds today — indeed, I also consider Banco Santander (LSE: BNC) to be a superior stock than the Black Horse Bank.

Key markets are flying

We all know about the terrific growth rates in emerging markets, a phenomenon that’s still driving trade at Santander, despite the impact of political and economic events on business in its traditional territories of the UK and mainland Europe.

This was abundantly clear in the bank’s robust first-quarter period, three months in which it saw excellent lending in key Latin American markets of Brazil and Mexico (and a stable-if-unspectacular performance from Chile) to nudge group income 2% higher at constant rates to €12.1bn.

The numbers again illustrated the brilliant pent-up demand for banking products in these fast-growing regions — in Brazil, for instance, retail loans and consumer finance bulged by double-digit percentages whilst deposits boomed by 14%.

They also underlined the massive progress Santander is making in the red-hot digital banking arena, the number of customers using such services leaping by 6.5m customers year-on-year to total 33.9m in quarter one. The recent launch of financial advice app Santander On and online investment platform Pi in its gigantic Brazilian marketplace certainly helped light a fire under customer numbers.

A Latin lovely

And judging from recent research by McKinsey & Company, Santander has a lot more to look forward to here. The management consultancy said that “we expect Latin America to remain the growth leader in banking,” noting that banking revenues in the territory have grown around 6% faster each year than the global average and more than any other region between 2012 and 2017.

More specifically, McKinsey predicts that total Latin American banking revenues will increase at a compound annual growth rate of around 10% in the next five years, excluding the cost of risk. And underpinning these likely increases will be the region’s “very low” banking penetration — only 30% to 50% of citizens over 15 years old have a bank account, the firm estimates, versus some 90% in the UK, US or Spain — as well as a young and expanding population facilitating quicker growth.

The long-term outlook for Santander, then, looks a lot more robust than over at Lloyds, where the prospect of a no-deal Brexit is casting a suffocating cloud. Indeed, my view of the bank’s likely profits generation became a lot dimmer following an Office for Budget Responsibility report released last week.

So forget about Lloyds and predictions of more big dividends, I say. I’d much rather grab Santander and its 5.6% forward yield.

The post Why I’d ignore the Lloyds share price and buy THIS big-yielding bank appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Certainly, the company faces risks which could hold back its share price recovery prospects. However, what seems to be a sound overall strategy, as well as global growth potential, could mean that it delivers a successful turnaround. Alongside another large-cap stock which released results on Thursday, Santander could generate high total returns.

Improving outlook

The stock in question is FTSE 100 insurance business RSA (LSE: RSA). Its full-year results were somewhat mixed, with its underlying performance being negatively impacted by higher weather costs and large loss challenges in Commercial Lines. In response, it is moving ahead with extensive underwriting action, with the company expected to report an improving performance in 2019.

Since the stock has fallen in value by 20% in the last year, it now has a dividend yield of around 6.6%. Dividends are expected to be covered 1.6 times by profit in the 2019 financial year, which suggests that there is scope for them to rise at a faster pace over the medium term. And with the stock’s bottom line forecast to rise by 12% this year, its price-to-earnings growth (PEG) ratio of 1 indicates that it may offer a margin of safety.

As such, RSA could prove to be a worthwhile growth, income and value opportunity. It could deliver impressive total returns compared to the FTSE 100 after what has been a relatively challenging year for the business.

Turnaround potential

As mentioned, Santander’s shares appear to have been negatively impacted by fears surrounding the global economy. Risks such as further import tariffs being put into place by major economies such as the US and China seem to have caused investor sentiment to deteriorate, while Brexit may also be causing continued challenges for the company in key markets.

The bank is investing heavily in digital growth, which could prove to be a major catalyst over the long term. It is also aiming to improve its competitive position in order to benefit from increased customer loyalty. This could create a stronger business in the long run, which is able to offer consistent profit growth.

With a dividend that is due to be covered 2.2 times by net profit in the current year, Santander’s income prospects appear to be relatively resilient. It is expected to grow its bottom line by 9% this year, which puts it on a PEG ratio of 0.9. This suggests that it offers a wide margin of safety. As such, it may offer an income investing opportunity as well as recovery potential that makes it more appealing than a cash ISA on a risk/reward basis.

The post I would dump the cash ISA and pick up Santander’s 6%+ dividend yield appeared first on The Twelfth Magpie.

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Peter Stephens 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.

In these uncertain economic and political times it’s worth protecting yourself by investing in shares where, unlike those mentioned above, strong trading conditions in Britain aren’t critical to drive the bottom line.

Taking this theme one step further, a great way to try and make a big cash pile for the years ahead is to buy into banks with significant emerging market exposure, regions where economic growth often powers comfortably ahead of those of so-called developed nations.

Georgia on my mind

Take Bank of Georgia Group (LSE: BGEO), for example. GDP expansion in the country continues to tear away and, according to the national statistics office Geostat today, the economy grew by a stonking 4.8% in 2018. Compare this with the 1.8% rise in the eurozone last year or the sub-1% rise anticipated in Britain for the same period.

Recent trading numbers showed the brilliant sales opportunities that Bank of Georgia enjoys. Revenues jumped 19.4% between July and September, to 266.6m GEL (Georgian Lari), as soaring credit demand also drove the loan book more than a quarter higher year-on-year to 8.72bn GEL. Consequently pre-tax profit before exceptional items soared 15.7% to 117.1m GEL.

Unsurprisingly, then, City analysts are expecting earnings to boom 19% in 2019, and this underpins hopes of a bulky 90p per share dividend. A consequent 5.7% yield gives plenty of reason for income investors to take a look, while the bank’s low forward P/E rating of 4.9 times should tempt value hunters to grab a slice of the action too.

Spanish star

Now Banco Santander (LSE: BNC), like Lloyds et al, isn’t immune to the economic troubles that Brexit is bringing, the business generating 13% of underlying attributable profit from these shores. Adding further trouble to the pot, the decelerating eurozone economy threatens profits growth at the Spanish bank, too, because more than half of group profit is generated in Europe.

That said, I’m impressed by Santander’s resilience in recent times despite worsening economic conditions on the continent and am confident that it has the tools to keep thriving. In recent days it advised that attributable profit leapt 18% year-on-year in 2018 to €7.81bn, with growth speeding up to 34% in the final quarter to €2.07bn.

It’s this ability to thrive in a tough environment that encourages City brokers to predict a 9% earnings uplift in 2019, optimism that translates into predictions of a chubby 23 euro cent dividend. Consequently the firm sports a market-beating 5.6% yields.

At current prices Santander is a steal, in my opinion, the bank dealing on a prospective P/E multiple of 7.9 times. This is also particularly cheap when you consider its exceptional revenues outlook in Brazil, from where it generates 26% of total profits, as well as the rest of Latin America’s major other emerging economies like Mexico and Chile.

The post Forget Lloyds, Barclays and RBS. I think these 5%-yielding banks are better ways to get rich appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays 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.

That appears to be the case with Santander (LSE: BNC). The global banking stock has recorded a 28% decline in its share price in the last year, which suggests that investors are pricing in the impact of potential risks facing the business.

With an impressive growth outlook, it could generate high returns. That’s not the case with all stocks, though, as evidenced by what appears to be an overpriced smaller company which released an update on Monday.

High valuation

The company in question is specialist filtration and environment technology business Porvair (LSE: PRV). It released results for the year to 30 November 2018, delivering record revenue of £128.8m, an 11% increase on the previous year. Profit before tax increased £0.3m to £12m, while adjusted basic earnings per share grew 11% to 22.9p.

The company also reports it has a healthy order book, while acquisitions such as Rohasys BV and Keystone Filter have been integrated and are performing well. Such acquisitions have expanded its capabilities in industrial and laboratory markets, and could positively impact on its financial outlook.

However, with Porvair expected to post a rise in earnings of 5% in the current year, its price-to-earnings (P/E) ratio of 22 suggests it’s significantly overpriced. That’s especially the case while a number of other shares trade on low valuations following the stock market pullback of recent months. As such, it seems to be a stock to avoid.

Margin of safety

With the world economy having an uncertain outlook, now could be a good time to consider the investment prospects of Santander. Certainly, after its poor share price performance over the last year, it may experience continued paper losses in the short run. Risks, such as a rising US interest rate, slowing China growth and the potential for a global trade war, could hurt its financial prospects to a significant degree. But its share price now seems to offer an equally significant margin of safety.

For example, Santander has a P/E ratio of around 7. This suggests that investors may have priced in challenges for the world economy that may not materialise over the medium term. Its dividend yield of 6.2% appears to be very affordable given its earnings forecasts, due to be covered 2.3 times by profit in the current year. And with its bottom line expected to rise by 9% this year, its strategy appears to be working well.

With the world economy forecast to grow by 3.5% in 2019, Santander’s shares could be a surprisingly sound recovery option. With a low valuation, income potential and a bright earnings outlook, the stock may be underrated by investors at the present time.

The post Why I think the Santander share price is a buy appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of Porvair. 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.

Investor demand really piqued in April after full-year results blasted past expectations and the FTSE 100 firm’s steady surge thereafter took it to the current four-year highs above 265p per share hit in the summer.

But while many were popping champagne corks around the time that fiscal 2018’s financials were released, I was again warning shareholders that Tesco was already looking more than a tad overvalued. The sharp-sell off that accompanied the grocer’s half-year report a month ago proved my point as City sales forecasts missed the target.

The biggest concern for the so-called Big Four established chains is the ongoing disruption that Aldi and Lidl have caused to the British supermarket arena, and while Tesco has waded into the low-cost/value end of the market more recently, I’m not convinced that it has what it takes to compete with the newer kids on the block.

Competitive concerns

And latest figures from Kantar Worldpanel show why. The research specialist recently said that, in the 12 weeks to October 7, Aldi increased sales by 15.1%, the fastest rate of growth since January. Lidl grew revenues by a pretty impressive 10% in the same period too, smashing the tiny rise of less than 1% that Tesco reported back then.

It’ll be interesting to see whether the Hertfordshire chain’s newly-launched Jack’s stores can help it to close the sales growth gap between itself and the German Goliaths. I’m not holding my breath. The latter two know exactly how to play the value end of the market and are expanding aggressively to consolidate their dominance here.

Tesco changes hands on a reasonable forward P/E ratio of 15.5 times thanks to City analysts predicting a 17% earnings rise in the year ending February 2019. The supermarket is also expected to initiate a significant dividend hike, to 5.2p per share this year from 3p last time out, and thus a chubby yield of 2.4% can be enjoyed.

5%+ dividend yields!

The Footsie firm’s uncertain long-term profits outlook means that I’d much prefer to buy into Banco Santander (LSE: BNC) instead. And particularly as its current share price provides much better value.

An anticipated 4% profits rise in 2018 means the FTSE 250 bank boasts a lower forward P/E multiple of 9 times, while a predicted dividend of 22 euro cents per share yields a mammoth 5.1%.  Quite why it trades at such a discount to Tesco is beyond me, I’m afraid.

Last week Santander declared that attributable profit boomed 13% during January to September, to €5.7bn, the business reporting strong turnover growth in its established European marketplaces like Spain and Portugal, as well as in its promising emerging markets.

Of course, the impact of ongoing Brexit uncertainty in the UK casts some doubt on its operations over here, while the ascension of right-wing Jair Bolsonaro to the Brazilian presidency also adds doubt to economic conditions in that key growth market. But such troubles are more than baked into the current share price, in my opinion, and I believe Santander offers plenty of upside at current prices.

The post Is FTSE 100 dividend stock Tesco a better value buy than Banco Santander? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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, recovery shares can also offer high reward potential. Their valuations may factor in a worst-case scenario that provides a capital growth opportunity for long-term investors.

Having fallen significantly in the last year, do Santander (LSE: BNC) and Gama Aviation (LSE: GMAA) now offer favourable risk/reward ratios? I think they could.

Weak performance

Business aviation services company Gama Aviation released a profit warning on Monday, with its performance in the third quarter weaker than expected across its divisions. The company had previously guided towards substantial growth in the second half of the year. Now that it has better visibility for the coming months, though, it expects underlying operating profit to be around $3m lower than previous expectations.

As a result, its shares have declined by as much as 27% following the news. This means that in the last year they’re down by around 46%, which is clearly hugely disappointing for investors.

While lower-than-expected demand could continue over the near term, the operational performance of Gama Aviation seems to be sound. It’s expected to post earnings growth over the medium term, while a price-to-earnings (P/E) ratio of around 9 suggests that it may offer a wide margin of safety. As such, and while further volatility and share price declines cannot be ruled out, I believe the long-term investment potential of the business could be enticing for less risk-averse investors.

Global growth

Santander shares have also been falling in the last year. The global bank has become less popular among investors despite a relatively strong operational performance. Its shares are down 29% in the last 12 months, which indicates that investors are becoming increasingly concerned about some of its key markets.

Clearly, countries such as the UK and Brazil are experiencing significant political change at the present time. This could lead to uncertainty for the bank, while general fears about the prospects for the world economy could lead to a continued de-rating of its shares. For example, the prospects of a global trade war, and rising US interest rates, may peg back its financial performance to some degree.

However, with Santander having made improvements to its efficiency and business model, it seems to be in a strong position to generate future growth. It trades on a P/E ratio of around 9, while it has a dividend yield in excess of 5% from a payout which is covered 2.2 times by profit. And with the company’s bottom line due to rise over the next two years, its overall financial performance appears to be sound. As such, and while it may prove to be unpopular over the coming months, I think the stock could deliver a successful turnaround in the long run.

The post Think the Gama Aviation and Santander share prices are bargains after 25%+ falls? Read this now appeared first on The Twelfth Magpie.

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Peter Stephens 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.

The tide has well-and-truly turned though. The political and economic considerations of Brexit have killed of the stratospheric rises in home values, for one. Stamp duty increases and stricter mortgage underwriting rules have also hammered buy-to-let enthusiasts over the past couple of years.

And the attack on the sector from politicians on both sides of the Commons divide continues to intensify. Earlier this week, prime minister Theresa May told the Conservative party conference that she wants to hike stamp duty for foreign investors buying up British homes. The outlook isn’t much rosier for UK landlords, as Labour would roll out a range of measures from capping rents to improving renters’ rights should they get elected.

Those 5% yields

The incendiary topic of housing is proving to be an increasingly important consideration for voters, and particularly for millennials for some of whom home ownership is a pipe dream. The environment is likely to get more and more hostile for landlords.

Quite why anyone would put themselves at the mercy of this toughening landscape, when there are plenty of brilliant FTSE 100 dividend shares that can deliver brilliant returns, escapes me.

Take ITV (LSE: ITV). The broadcaster has been crimped by strained advertising budgets in recent times, but the future looks extremely rosy. It is investing vast sums in its ITV Hub and channel branding to attract more and more viewers. Just as exciting is the outlook for ITV Studios — the company is targeting growth of 5% over the next few years, and I am tipping its production arm to keep swelling long after this, helped by additional acquisition activity.

My Foolish colleague Edward Sheldon recently commented on the huge capital reserves you need to get a foot on the buy-to-let ladder. But investing in ITV doesn’t cost the earth: at the present time it can be picked up on a forward P/E multiple of 10.5 times, comfortably below the accepted value realm of 15 times and below.

With the company also carrying monster dividend yields of 5% and 5.1% for 2018 and 2019 respectively, it’s pretty hard to ignore right now.

Emerging market mammoth

There are cheap dividend heroes to be found outside the Footsie, needless to say, and one of them is Banco Santander (LSE: BNC).

Right now dividend yields at the Spanish bank sit at 5% for 2018 and 5.5% for next year. The bank looks to be in great shape to meet current payout projections too, thanks to its positive earnings outlook and solid balance sheet. Its phased-in CET1 capital ratio of 10.98% as of June smashes the ECB target below 9% by no little distance.

In terms of value, the banking behemoth carries a prospective P/E ratio of just 8.9 times. In my opinion this makes it a bargain given the brilliant profits long-term opportunities the firm has in the developing regions of Latin America. In this territory, attributable profit (at constant currencies) leapt 26% year-on-year from January to June, to €2.2bn.

I wouldn’t rule out further heady improvements either, as the twin catalysts of rising population levels and increasing personal affluence levels drives demand for financial products. 

The post Why I’d ignore buy-to-let and buy these cheap 5%-yielding dividend stocks instead appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.

One explanation I’ve seen is that rising US interest rates are causing borrowing costs to rise, putting pressure on bank margins and household finances. It’s certainly true that the slump in banking shares hasn’t been restricted to Santander. Most UK and European banks have also seen their share prices fall.

As a shareholder, I’m still fairly bullish about the outlook for Santander. I believe it could be a good choice if you’re looking for dividend stocks to top up your state pension payments.

Despite this, there’s clearly a risk that my timing is wrong. So I’m also going to look at a mid-cap UK stock with a tempting 6.8% yield.

Long-term growth

One of Banco Santander’s main attractions for me is the group’s geographic diversity.

During the first half of this year, the bank’s attributable profit rose by 4% to €3,752m. Around 44% of this came from Latin American countries, mainly Brazil. A further 14% came from the UK, with 35% from the EU and 7% from the USA.

This heavy exposure to Latin America presents good opportunities for long-term growth, in my opinion. It also provides useful diversification away from the slow-growing EU and UK economies.

I’d keep buying

City analysts expect Santander’s earnings per share to rise by about 22% to €0.48 per share hit year. In 2019, a more modest gain of 8% is expected.

These forecasts put the stock on a 2018 forecast P/E of 8.8, with a dividend yield of 5.2%. With tangible asset backing worth 367p per share, I still think this bank should be a buy at 385p.

This 6.8% yield could be a better choice

Another sector that’s out of favour at the moment is insurance. I’ve written about some opportunities in this sector in recent weeks, but today I want to consider a new choice.

Motor insurer Sabre Insurance Group (LSE: SBRE) has been trading in various forms since 1982, but only arrived on the London Stock Exchange at the end of 2017. Sabre’s share price has remained largely unchanged since then. But we have learned more about this business over the last eight months.

In 2017, the group’s gross written premium (similar to revenue) rose by 7.1% to £210.7m. Underwriting profit rose by 5.5% to £59m, although investment losses meant that adjusted after-tax profit fell slightly to £53.3m.

The group’s profits remained stable during the first half of 2018, when adjusted after-tax profit rose by 11% to £26.1m. Chief executive Geoff Carter warned that the market “has entered a phase of weaker pricing”, but he expects the group’s specialist focus on drivers who attract higher premiums to provide some protection from the competition.

Spare cash

An increase in the group’s solvency ratio to 179% means that this regulatory measure is now above the company’s upper target of 160%. As a result, Mr Carter expects to be able to pay a special dividend later this year.

Sabre shares have dipped slightly today, following the sale of an 18% stake in the company by the group’s former private equity owner.

I don’t see this as a major concern. Indeed, I’m tempted by the group’s high level of profitability. Trading on 13 times forecast earnings and with a prospective yield of 6.8%, I’d rate Sabre as a buy.

The post Forget the Santander share price! This 6.8% yielder could top up your State Pension appeared first on The Twelfth Magpie.

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Roland Head owns shares of Banco Santander SA. 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.

In the current climate, banks with significant foreign exposure are worth their weight in gold. And while I am bearish on plenty of its peers, its exceptional global footprint straddling developed and emerging markets alike makes me extremely optimistic about the investment prospects of Banco Santander (LSE: BNC).

That is not to say that its vast overseas exposure has seen it having it all its own way in recent years. Macroeconomic turbulence in Latin America in particular prompted earnings turbulence as Santander sources around 45% of aggregated profits from that region.

Foreign markets still improving

But supported by a recovery across South American economic powerhouse Brazil, the earnings picture on this continent, and therefore that of Santander, looks exceptionally rosy. Attributable profits there surged 27% in the first quarter, and improving economic conditions, combined with the relatively-low take-up of banking products, still leaves Santander with plenty of business to go for.

But Santander is not totally immune to the troubles in our own marketplace, of course. Its UK division, from where the bank sources just over a tenth of group earnings, saw attributable profit sink 21% during January-March.

However, it can remain optimistic about the health of its other European businesses to keep group profits to keep on jumping. Robust economic conditions in Continental Europe helped profits there move 21% higher in Q1, with Spain recording a 26% year-on-year improvement.

The terrific progress of all of Santander’s non-UK operations enabled it to ride out the troubles on these shores and report a 10% year-on-year improvement in group attributable profit in the first quarter, at €2.05bn.

Brilliant Value, stunning dividends

It should come as little surprise that City brokers are expecting earnings to maintain their northwards charge in the medium term at least, with current forecasts suggesting bottom line rises of 6% in 2018 and 11% in 2019.

And as my Foolish colleague Peter Stephens recently pointed out, the Footsie business can be considered a brilliant bargain based on analyst forecasts, the business sporting a forward P/E ratio of just 8.1 times.

What’s more, this bright profits outlook, combined with Santander’s ever-improving balance sheet, supports predictions of bulky dividends through to the close of next year. In April’s bubbly trading statement, the bank also noted that its CET1 fully loaded capital ratio improved to 11% as of March from 10.84% at the end of December, and 10.66% a year earlier.

The Spanish business is expected to lift the dividend from 22 euro cents per share last year to at least 23 cents in 2018, matching chief executive Ana Botin’s target made back in the spring. Furthermore, in 2019 a 27 cent payment is forecast by the Square Mile, and it is the year in which Santander is also pledging to revert to paying full cash dividends instead of the three cash/one scrip dividends per year offered right now.

These estimates mean it carries jumbo yields of 4.8% and 5.9% for 2018 and 2019 respectively. I fully expect dividends to continue shooting higher too, with earnings for many years to come given its exceptional progress across the world. I believe the bank has what it takes to make investors a fortune in the years ahead.

The post This 5%+ yielding bank stock could make you a million appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays 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.

However, while the bank’s slow and steady approach to business may not be exciting, it does mean that the group has been able to avoid many of the problems its European peers have suffered and is now one of the world’s dominant players.

Global presence 

Santander’s global presence has not always worked in its favour. The group was able to avoid the worst of the financial crisis, thanks to its exposure to emerging markets, specifically Brazil which today accounts for one-quarter of overall earnings. Unfortunately, as Europe has recovered over the past five years, Brazil has struggled, and so has the firm’s US division.

But it now looks as if these problems are behind the group, and for the first time in around a decade, Santander seems as if it has entered 2018 firing on all cylinders. 

At the end of last year, the US Federal Reserve finally lifted a ban imposed in 2014 on the group’s US holding company, or subsidiaries, from paying dividends or making any capital distributions. This followed a dividend payment of $52m from Santander Consumer USA to the US parent that reportedly violated restrictions put on the bank following a failed stress test earlier in the year. 

Now this headwind is behind the company, management believes the US division is at a “turning point” and expects 2018’s performance to be much better than 2017’s. The US arm will also benefit from tax reform, the savings from which management is planning to reinvest in new loan growth.

Emerging growth 

As well as an improved trading performance in the US this year, I believe we will see a continuation of the economic recovery in Latin America, which helped Santander report a 26% increase in net profits for Brazil last year. 

Despite tensions with the US, a broad-based global economic recovery has inspired economists to increase their estimates for economic growth in Brazil and Mexico this year and next over the past few months, and this should have a positive impact on Santander’s performance in these two key countries.

A blowout year 

Considering all of the above, I believe 2018 is set to be a blowout year for the Santander share price. City analysts have pencilled in earnings per share growth of 8% for 2018, followed by an increase of 11% for 2019.

To me, these figures seem to be too conservative. Indeed, last year the company produced reported earnings growth of 8.7%, and it had none of the positive tailwinds listed above behind it. 

With this being the case, as the year progresses, I believe City analysts could revise their forecasts for growth higher. And if they do, shares in Santander could leap higher as they are currently trading at a relatively undemanding forward P/E of 10.8. 

Analysts are expecting the company to announce an 87% increase in its full-year dividend per share to 19.3p giving a dividend yield of 4.1% at current prices.

The post Why the Santander share price could smash the FTSE 100 this year appeared first on The Twelfth Magpie.

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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.