Is Royal Bank Of Scotland Group plc A Super Income Stock?

Does Royal Bank Of Scotland Group plc (LON: RBS) have the right credentials to be classed as a very attractive income play?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.


On the face of it, RBS (LSE: RBS) (NYSE: RBS.US) may not seem like it has the potential to be a super income stock. For instance, it hasn’t paid a dividend throughout the credit crunch and has made a loss in each of the last five years. Furthermore, it continues to be weighed down by spiralling PPI costs and a relatively large amount of political risk.

However, the next five years are unlikely to be a carbon copy of the last five. So could RBS prove to be a super income stock in future?

2014 is forecast to see RBS pay its first dividend since 2008. Although it looks set to be only a small dividend, it is a dividend nonetheless and coincides with the first year that RBS is expected to make a net profit, with the bank forecast to deliver earnings per share (EPS) of just under 25p.

As mentioned, the dividend is set to be small at just 0.5p per share. This puts RBS on a yield of just 0.15% — hardly anything to get excited about. As you would expect, the yield doesn’t compare favourably to the FTSE 100 average of 3.5% and is well-behind both inflation and the rate on a typical high street bank account.

However, a dividend of 0.5p per share represents just 2% of forecast EPS for 2014. As such, RBS seems to be starting (very) slowly with dividend payments but has the potential to significantly quicken the pace. For instance, dividends per share in 2015 are forecast to increase seven-fold to over 3.5p per share, which would put RBS on a yield of 1.1%.

While this is still a relatively low yield, dividend payments in 2015 would still only represent 13% of profits. With peers such as Lloyds and Barclays targeting dividend payout ratios of up to 65% of profits, it is clear that RBS could continue to increase dividends per share at an extremely fast pace. In time, this could mean a dividend that not only holds its own when compared to the wider market, but becomes relatively attractive, too.

So, while RBS may not be classed as a super income stock at present — owing to its nominal yield — it appears to have the potential to become an attractive income play. With profitability set to improve in the coming years, RBS could regain its status as a key part of income-seeking portfolios over the medium to long-term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter owns shares in RBS.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

Down 75%! Will the Saga share price ever be loved again?

The last few years have been incredibly difficult for those watching the Saga share price. But what does the future…

Read more »

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Up 37.5% in just 12 months, I think this is one of the FTSE 100’s best investments

Our author says this FTSE 100 company is likely to keep on capitalising on the AI and data boom. But…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This UK share just spiked 15% on bid news. Can we bag a quick profit?

UK share prices are having a good 2024, so far, and this one's already up 39%. Two takeover bids in…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

I’m ‘blowing a raspberry’ at Raspberry Pi shares. Here’s why

Some early investors have made great profits from Raspberry Pi shares. But our writer's questioning whether the 'easy money' has…

Read more »