I’ve been looking at how our FTSE 100 banks have performed over the past 10 years, and it was quite a shocker to reflect on just how badly Royal Bank of Scotland has fared.
But what about Banco Santander (LSE: BNC) (NYSE: SAN.US)? It’s based in Spain, one of the deeply-troubled eurozone economies, yet it’s always been relatively prudently managed — even if it does have what might seem like a bizarre dividend policy compared to most in the sector.
Before I look at dividends, a quick check shows that between the end of September 2004 and the same date a decade later, Banco Santander shares have risen in price by a modest 1.3%, so £10,000 invested back then would be worth £10,130 today. Never mind comparing with a savings account, a return like that barely beats sticking the cash under your mattress!
Dividends
So it’s all down to dividends, and on that score Banco Santander has rewarded its shareholders reasonably well.
Dividend yields have been exceptionally high, reaching the 5% mark during the middle few years of our decade and soaring to 8-9% and more in recent years! And the bank was doing this even when earnings didn’t come close to covering the annual cash payout.
That was possible because Santander’s Spanish shareholders typically took scrip dividends instead of cash, and so the bank didn’t actually have to find the money to pay them — it just issued new shares.
Of course, there’s no such thing as free scrip, and the issuing of so many new shares has been one of the reasons the share price itself has done so poorly, with earnings per share spread across more and more shares each year. But what did the dividend achieve?
Well, you’d have added a further £6,454 to your investment pot, taking your stash up to £16,584.
Reinvest?
With reinvestment, you actually wouldn’t had had much extra, largely thanks to Santander’s yield having risen so strikingly only in the last few years — so you’d have bought more new shares at relatively low prices in recent years and you wouldn’t have bought so many when they were a lot more expensive.
Still, such a strategy would only have added £304 to the pot above the reward you’d have had taking it as cash, giving you a final value of £16,888 pounds — or 68.9% over 10 years, which isn’t bad.
I think the lesson is that it’s always the total return that counts, regardless of how it’s split between price growth and dividend income.
