Picture supply: Getty Pictures
It’s been a humorous 2024 to date for Banco Santander (LSE: BNC) shares. They began the 12 months at 329p and by Could had reached 414p, a five-year excessive.
This briefly made Santander the eurozone’s greatest financial institution by market worth (above BNP Paribas). Since then, nonetheless, the share value has fallen again to 340p, representing a 3.3% rise.
This implies a £10,000 funding made at the beginning of January would now be price £10,334 on paper. There would even have been a dividend in Could, taking my return above £10,500.
Is that any good? Not likely, I’d argue, significantly when Lloyds‘ share value is up 15.7% 12 months to this point, whereas Barclays has surged 35.3%. Each have additionally paid dividends.
Plus, Santander’s most important itemizing is in Madrid, the place even the IBEX 35 (Spain’s most important index) is up 5.7% in 2024. In order that’s additionally disappointing.
What’s been occurring?
The Spanish financial institution has a globally diversified enterprise mannequin. Its sturdy presence in Europe offers a secure income base, whereas its rising footprint in Latin America gives thrilling development alternatives.
Up to now although, Santander has come below fireplace from some shareholders for being a bit stingy with its dividend distribution. So in February 2023, it introduced that it will improve the payout ratio (the proportion of earnings distributed to shareholders) from 40% to 50%.
Transferring in the direction of this coverage, it returned greater than €5.5bn in dividends and share buybacks final 12 months as web revenue hit a file €11.1bn. In Q2, its web revenue rose 20% 12 months on 12 months to €3.2bn due to stable ends in Spain and Brazil.
It seems the inventory has fallen these days as a result of traders concern its very sturdy web curiosity earnings (NII) numbers have peaked. NII is the distinction between curiosity earned on loans and that paid out on deposits.
Long run nonetheless, I’m bullish on the financial institution’s development prospects in Latin America. As many as 30% of individuals in Brazil and 50% in Mexico don’t even have financial institution accounts but. The chance may be very giant.
In fact, the area isn’t with out danger. There typically appears to be a serious financial system experiencing difficulties there, with Argentina being the newest instance. Such situations can improve mortgage defaults.
Ought to I make investments?
I presently have two financial institution shares in my portfolio. These are HSBC and Financial institution of Georgia, which yield 7.4% and 5.5%, respectively. By comparability, Santander’s yield is simply 4.1%, even after growing the payout ratio.
That doesn’t catch my eye, particularly when a FTSE 100 index fund gives a 3.6% yield with out taking over stock-specific danger.
However what about that pretty Latin America development alternative? Effectively, one among my largest holdings is MercadoLibre, the e-commerce chief throughout the area. Its Mercado Pago fintech platform now has 52m month-to-month energetic customers and in Q2 its belongings below administration grew 86% 12 months on 12 months to $6.6bn.
It has utilized for a banking licence in Mexico and desires to change into the area’s main digital financial institution. This positions it as extra of a rival to conventional lenders like Santander.
I’m presently pleased to get publicity to the expansion of monetary companies in Latin America by MercadoLibre.
