The Motley Fool

Why Standard Chartered plc could be a great FTSE 100 dividend stock

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.

Illustration showing how the world is connected
Image source: Getty Images.

Shares in Asia-focused bank Standard Chartered (LSE: STAN) met with a warm reception this morning after the bank announced a return to profit and said it would restart dividend payments.

The bank’s pre-tax profit rose by 175% to $3bn last year, while return on equity — a key measure of profitability for banks — rose from 0.3% to 3.5%. Although that’s still low, it’s a significant improvement and shows the bank making real progress towards its initial target of 8%.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Shareholders will receive a dividend of 11 cents per share for 2017, giving a yield of about 1%. However, I believe this payout is likely to rise significantly over the next couple of years, making Standard Chartered a potential dividend growth buy at current levels.

What’s going well

The bank’s operating income (equivalent to revenue) rose by 3% to $14.3bn last year. One of the main factors behind this gain seems to have been a strong performance in Hong Kong. Management said that income from Greater China & North Asia — which includes Hong Kong — rose by 8% last year.

There was also good news on bad debt. Loan impairments fell by 50% to $1.2bn last year. This seems to suggest that the worst of the group’s problem loans have now been addressed, and that loan quality is improving.

The reduction in impairments helped to lift the bank’s net interest margin from 1.5% to 1.6%. Net interest margin is a measure of the difference between interest paid on deposits and interest earned on loans — in effect, it’s the bank’s operating profit margin.

What went badly

Not all operations managed to deliver growth last year. The main area of weakness was the Financial Markets business, which suffered from lower levels of volatility in global stock markets. This caused income from Singapore and from the bank’s European and American operations to fall.

Another concern is that costs remain quite high. Regulatory costs rose by 15% — or $1.3bn — last year. Although management said that 85% of its planned $2.9bn efficiency programme has now been delivered, the group’s underlying cost-to-income ratio only fell by 1.4% to 70.8% last year. That’s still pretty high.

Why I’m a buyer

I hold Standard Chartered in my personal portfolio and would be happy to buy more after today’s news. Although the bank isn’t as cheap as some rivals, I believe its focus on the faster-growing economies of Asia should help to improve returns. Rising interest rates could also provide a boost to profits.

Chief executive Bill Winters said today he’s “encouraged” by the start to 2018, which has delivered “broad-based double-digit” earnings growth compared to the same period last year.

The bank’s underlying earnings are expected to rise by 57% to $0.74 per share in 2018, putting the stock on a forecast P/E of 15.9. Analysts have pencilled in a dividend of $0.28 per share for this year, giving a prospective yield of 2.4%.

In my view Standard Chartered is one of the most attractive of the big banks at the moment. I continue to rate these shares as a buy.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Roland Head owns shares of Standard Chartered. The Motley Fool UK has recommended Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.