For ten years, eurozone interest rates stayed so low that bank dividends barely moved the needle for investors. Now, a year into the European Central Bank’s gradual rate increases, banks want to offset those lean years with higher investor fees. Santander and BBVA have announced interim dividends higher by more than 30% based on 2023 results, and experts expect these boosts to extend to the other four Ibex 35 banks that have posted record profits. The six banks in Spain’s heritage of elective and share buyback programs all point to 2023 as a banner year for dividends in the Spanish financial sector.
Santander signaled the shift first. The board, chaired by Ana Botín, revealed that cash dividends will be paid on the basis of the current year’s results. Eight point ten euro cents per share, a 39% rise from the prior year. They also unveiled a buyback program near one billion three hundred ten million euros, pending regulatory clearance. To fund this, Santander lifted the payout ratio from 40% to 50%, with half paid in cash and the other half returned through share repurchases. The cash dividend will start on November 2, and a supplementary payment will come in May.
A day later, BBVA confirmed an interim dividend of 0.16 euros per share in cash, up 33.3% from 0.12 euros the year before. The Basque bank had already raised the dividend by 50% last year versus 2021. The payout ratio has moved from the 35-40% range set two years ago in 2017 to new targets. The 40% and 50% share buyback program is planned to run in Q4 for about 1,000 million. The group typically pays an interim dividend in October, tied to each year’s results, with the final payment deferred until April. Other Ibex 35 banks have yet to announce dividend hikes, but some are improving shareholder compensation. CaixaBank, for example, had already executed roughly 11.8% of its 500 million euro buyback by the end of September.
“After Santander and BBVA, we will soon see dividend increases across all banks,” says Nuria Álvarez, an analyst at Renta 4. The reason lies in the strong profits posted in 2023: following higher interest rates, banks reported double-digit profit growth in the first half. Analyst Javier Cabrera notes that, apart from Unicaja, which saw a 13% dip in net distributable profit to 148 million, most entities delivered solid results in the first six months. Santander’s attributable profit rose 7% to 5,241 million; BBVA’s reached 3,878 million; Sabadell’s grew 43.6% to 564 million; Bankinter climbed 54% to 417.9 million; and CaixaBank rose 35.8% to 2,137 million.
So why is 2023 shaping up as a dividend festival for Spanish banks? The market expects a softer first quarter of 2024, with a dividend policy unlikely to change from this year. “If profits hold in 2024, the gross amount could peak again in 2023,” Álvarez explains. Investors will also wait to see next year’s default data. Castelo, an iBroker analyst, adds that rising defaults could pose challenges.
low rates
Beyond higher profits that give banks room to maneuver on dividends, lenders aim to reward shareholders after a long stretch of low rates. “Banks operated with very low rates for years and had to recapitalize. That squeeze affected investors,” notes Castelo. The pandemic-era distribution ban is another factor. Cabrera highlights a Spanish banking trend toward share buybacks, describing it as not common in Spain and a smart way to reward holders. Bankinter may skip this path, but the rest are expected to follow Santander, BBVA and CaixaBank in boosting interim payouts.
Interest rates around 4.5% will benefit banking dividends, while other sectors, including energy, maintained higher payouts within Ibex 35. Yet tighter ECB policy will trim profits for many companies. Repsol stands out as an exception, with rising oil prices enabling a potential share buyback to reduce debt. Cabrera sums up the view: high rates primarily boost banks and pressure profits across other sectors due to higher financing costs.