Over the past decade, eurozone rates stayed so low that bank dividends barely moved the needle for investors. A year after the European Central Bank began gradual hikes, lenders aim to offset those lean years with higher investor fees. For now, Santander and BBVA have announced interim dividends based on 2023 results that are more than 30% above the prior year. Experts foresee these increases extending to the other four Ibex 35 members delivering record profits. The six banks in Spain’s dividend and share repurchase programs signal a strong year ahead for Spanish financials in 2023.
Santander led the way. The board, chaired by Ana Botín, recently confirmed cash dividends aligned with this year’s results: 0.0810 euros per share, a 39% rise from the previous year. A share buyback program approaching 1.31 billion euros is also on the table, pending regulatory clearance. To cover this payment, Santander boosted the payout ratio from 40% to 50%, with half paid in cash and half via buybacks. The cash dividend is set to be paid on November 2, with a complementary dividend arriving in May.
Shortly after, BBVA announced an interim dividend of 0.16 euros per share in cash, up 33.3% from 0.12 euros the prior year. The Basque lender had already raised its dividend by 50% from 2021 levels. The payout ratio has shifted from a 35-40% range two years earlier to a 40-50% window; a 1 billion euro buyback program will run in the fourth quarter. BBVA typically pays an interim dividend in October and defers the supplementary payment to April. CaixaBank has also been moving to bolster shareholder compensation, having completed about 11.8% of its 500 million euro buyback by late September.
Analysts weigh in on further momentum. Nuria Álvarez of Renta 4 suggests that after Santander and BBVA, dividend increases should ripple through the rest of the sector. The 2023 profits were strong: lenders benefited from higher rates with double-digit gains in the first half, according to Javier Cabrera. He notes that Excluding Unicaja, which saw a 13% decline in distributable profit to 148 million, most banks delivered positive results. Santander reported a 7% rise in attributable profit to 5,241 million, BBVA reached 3,878 million, Sabadell climbed 43.6% to 564 million, Bankinter rose 54% to 417.9 million, and CaixaBank grew 35.8% to 2,137 million.
So, why is 2023 turning into a dividend festival for Spanish banks? The market anticipates a softening in early 2024, with dividend policies likely to hold steady unless profits deteriorate. Álvarez notes that if profits remain high in 2024, the 2023 gains may peak before year-end. Analysts also caution that rising defaults could impact profits, a view echoed by iBroker’s Antonio Castelo.
High rates benefit bank dividends directly. Other sectors, including energy, have paid higher yields, but tighter monetary policy from the ECB will squeeze profits elsewhere as financial costs rise. Repsol stands out as an exception, leveraging higher oil prices to support a buyback program to reduce debt. Cabrera observes that elevated rates primarily boost banks while placing pressure on non-financial earnings.
Beyond the dividend upside, banks say they want to acknowledge a decade of ultra-low rates. The pandemic era had paused distributions and forced recapitalizations, leaving investors wary. Bank buybacks are increasingly used as a tool in Spain to provide shareholder value, though Bankinter is not pursuing a buyback strategy this cycle. Still, Santander, BBVA, and CaixaBank appear ready to lead the charge on interim payouts and share repurchases as part of wider market expectations.
Overall, higher interest rates have translated into stronger banking profits, especially for lenders with robust balance sheets. The forecast remains cautious about 2024, but the momentum from 2023 has reshaped expectations for dividends across the sector, with many investors eyeing continued distributions subject to quarterly results and macroeconomic conditions.