Experts say this will be a great year for banking dividends

For a decade, interest rates in the eurozone remained so low that bank dividends did not make much difference in investors’ pockets. Now, a year after the European Central Bank began gradual interest rate hikes, financial institutions wanted to offset those years with increases in investor fees. For now, Santander and BBVA have announced an increase of over 30% in the interim dividend based on 2023 results, but as experts predict, these increases will be extended to the other four financial institutions that are part of the Ibex 35’s record profits. Each of the six banks in Spanish elective and share buyback programs shows: 2023 will be a great year for dividends in the Spanish financial sector.

Santander It was the company that gave the signal to start. The board of directors of the organization, chaired by Ana Botín, announced a week ago that cash dividends will be paid based on the results of the current fiscal year. 8.10 euro cents per shareso one 39% increase compared to the fee paid a year ago. They also agreed to launch a share buyback program worth close to 1 billion 310 million euros, which must receive regulatory approval. To cover this payment, Santander also agreed to increase the proportion of profits distributed to shareholders, the ‘payout’, from 40% to 50%. Half of this percentage is paid in cash and the other half through share repurchases. This cash dividend payment will be effective from November 2, and a complementary dividend will be offered in May.

A day later, BBVA agreed to pay interim dividends based on the results of the current financial year 0.16 euros per share in cash, 33.3% more more than the 0.12 euro cents paid the previous year. The Basque bank had already increased the dividend by 50% last year compared to the amount paid in 2021. In this case, the ‘payout’ has increased from the 35-40% set two years ago in 2017 to the following ranges: The 40 percent and 50 percent share buyback program will be carried out in the fourth quarter in the amount of 1,000 million. The group always pays an interim dividend in October based on each year’s results and postpones the complementary payment until April at the end of the year. The rest of the Ibex 35 banks have yet to announce an increase in dividends, but some have taken steps to improve shareholders’ compensation. This is the case of CaixaBank, which had already carried out approximately 11.8% of its €500 million buyback program at the end of September.

“After Santander and BBVA We will soon see dividend increases in all banks“says Nuria Álvarez, analyst at Renta 4. The reason for this lies in the historical profits they achieved in 2023: “Following the increase in interest rates, banks managed to increase their profits by double-digit rates in the first half of the year. Analyst Javier Cabrera explains: “With the exception of Unicaja, which saw a 13% drop in net distributable profit to 148 million, and despite the extraordinary tax on banks, the remaining entities Positive results in the first six months of the year. Specifically, Santander’s attributable profit rose 7% to 5,241 million; 31.1% of BBVA for 3.878 million; Sabadell’s 43.6% to 564 million; Bankinter increased by 54% to 417.9 million, and CaixaBank increased by 35.8% to 2,137 million.

So why will 2023 be the dividend festival for Spanish banks? Because after this year’s historic results, the market It predicts a decline in the first quarter of 2024 with a dividend policy that will not change from this year. “And if profits are made in 2024, the gross amount will peak in 2023,” says Álvarez. We will also have to wait for next year’s default data. “If defaults increase, there will be problems,” adds iBroker analyst Antonio Castelo.

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In addition to the profit increase that gives banks more room to maneuver with their dividends, financial institutions also They want to reward their shareholders for this decade of low interest rates. “Banks operated for many years with very low interest rates and also had to recapitalize. Therefore, their investors were affected,” says Castelo. A ban on profit distribution during the pandemic period was also added to this. Cabrera also highlights the trend of Spanish banks to engage in share buybacks because “it is not a common practice in Spain” and “it is also a good way to pay shareholders.” Bankinter will be the only one not opting for this method, but the rest are expected to follow the example of Santander, BBVA and CaixaBank to improve the interim dividend.

Interest rates of 4.5 percent will only benefit banking dividends. Other sectors, such as energy, have maintained high payouts compared to other securities in the Ibex 35, but the tightening of monetary policy by the ECB will directly affect the profits of these companies. The exception is RepsolInvestors taking advantage of the increase in crude oil prices will be able to initiate a share repurchase program to reduce debt. Cabrera summarizes: “High interest rates mainly benefit banks and hurt the profits of other sectors by increasing their financial costs.”