This week we are going to use Dividendmax to look at the global banking sector. Our opening criterion is for an expected dividend increase in the coming year and this yields us 20 stocks. Looking for an annualised yield over 4% brings it down to 8 stocks which can be listed:
Banco Santander, BBVA, Credit Suisse, Close Brothers, HSBC, Standard Chartered, Credit Agricole and BNP Paribas. The current investor favourites, Lloyds and RBS do not appear as they have not paid a dividend for a long time.
I do not profess to be any sort of an expert on banking stocks so we are going to rely on our tools to pick out the strong companies and try to weigh that up against some of the very high yields that can be had from the 'weaker' companies.
We add a CADI (consecutive annual dividend increases) of greater than one to give us some indication that the bank has recovered from the financial crisis. This eliminates the two French banks and Credit Suisse. Banco Santander have a fabulous yield and investors may well be tempted by it. If so, contact your broker and discuss the withholding tax situation which the Spanish Government has levied since 01/01/2012 at the rate of 21%. This can be reduced to 15% if you apply. However, it is very difficult to recommend the Spanish banks right now. When the yield gets up that high, the market is telling you something.
This leaves three UK banks who emerged from the financial crisis relatively unscathed. Close, Standard Chartered and HSBC.
Close brothers were once top of the optimiser, but they have rallied very strongly. They have much lower dividend cover then the other two and will be eliminated this time. HSBC are trading pretty close to their 52 week high. Standard Chartered, admonished last year for 'money laundering' with Iran look very good value at these levels. The scandal cost them $340 million in fines and probably quite a lot more in reputational losses. It has strong emerging markets exposure and it is recent weakness in these markets that has held back the shares. Standard Chartered are the only bank that we cover that has continued to increase its dividend throughout the whole of the financial crisis (since at least the year 2000) and for that reason is our dividend of the week.
