Why the Santander share price could smash the FTSE 100 this year

If you want to beat the FTSE 100 (INDEXFTSE: UKX) this year, the Banco Santander SA (LON: BNC) share price could help you.

| 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.

Shares in Santander (LSE: BNC), Europe’s largest bank by market capitalisation, often get overlooked because they are not exciting enough.

However, while the bank’s slow and steady approach to business may not be exciting, it does mean that the group has been able to avoid many of the problems its European peers have suffered and is now one of the world’s dominant players.

Global presence 

Santander’s global presence has not always worked in its favour. The group was able to avoid the worst of the financial crisis, thanks to its exposure to emerging markets, specifically Brazil which today accounts for one-quarter of overall earnings. Unfortunately, as Europe has recovered over the past five years, Brazil has struggled, and so has the firm’s US division.

But it now looks as if these problems are behind the group, and for the first time in around a decade, Santander seems as if it has entered 2018 firing on all cylinders. 

At the end of last year, the US Federal Reserve finally lifted a ban imposed in 2014 on the group’s US holding company, or subsidiaries, from paying dividends or making any capital distributions. This followed a dividend payment of $52m from Santander Consumer USA to the US parent that reportedly violated restrictions put on the bank following a failed stress test earlier in the year. 

Now this headwind is behind the company, management believes the US division is at a “turning point” and expects 2018’s performance to be much better than 2017’s. The US arm will also benefit from tax reform, the savings from which management is planning to reinvest in new loan growth.

Emerging growth 

As well as an improved trading performance in the US this year, I believe we will see a continuation of the economic recovery in Latin America, which helped Santander report a 26% increase in net profits for Brazil last year. 

Despite tensions with the US, a broad-based global economic recovery has inspired economists to increase their estimates for economic growth in Brazil and Mexico this year and next over the past few months, and this should have a positive impact on Santander’s performance in these two key countries.

A blowout year 

Considering all of the above, I believe 2018 is set to be a blowout year for the Santander share price. City analysts have pencilled in earnings per share growth of 8% for 2018, followed by an increase of 11% for 2019.

To me, these figures seem to be too conservative. Indeed, last year the company produced reported earnings growth of 8.7%, and it had none of the positive tailwinds listed above behind it. 

With this being the case, as the year progresses, I believe City analysts could revise their forecasts for growth higher. And if they do, shares in Santander could leap higher as they are currently trading at a relatively undemanding forward P/E of 10.8

Analysts are expecting the company to announce an 87% increase in its full-year dividend per share to 19.3p giving a dividend yield of 4.1% at current prices.

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Will the 5.6% BT Group dividend yield grow in 2024?

Zaven Boyrazian explores whether BT Group can continue hiking its dividend and if the telecoms giant belongs in his income…

Read more »

Investing Articles

FTSE 100’s near a 52-week high, but this stock’s still dirt cheap!

The FTSE 100's on the rise, but not all stocks have been so fortunate. Here’s one company that got left…

Read more »

Investing Articles

Is this ‘secret weapon’ a multi-billion pound reason to buy Lloyds shares?

Dr James Fox explains how Lloyds shares could rise even higher as the bank's 'strategic hedge' is likely to boost…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

3 of the best penny stocks for growth, dividends, and value!

Looking for top penny stocks to buy? Royston Wild believes these UK small-cap shares could prove lucrative investments in the…

Read more »

Investing Articles

How I’d aim to turn an empty ISA into £275k by purchasing cheap shares this summer

Harvey Jones is taking advantage of the summer stock market lull to buy cheap shares and build a high and…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »

Investing Articles

These 2 great value income stocks could help me get rich and retire in style

These two FTSE 100 income stocks have terrific track records of dividend growth and Harvey Jones wants them in his…

Read more »