FTSE 100 banks such as Lloyds, Barclays and NatWest are popular for investors seeking passive income. But I’m looking a little further down into the FTSE 250 to locate what I think could be a better dividend stock to buy.
This emerging market bank offers a much larger dividend yield than those blue-chip banks for 2024. It also has a stronger balance sheet and a better short-term earnings picture.
The company in question? TBC Bank Group (LSE:TBCG). Let me talk you through why I think it could be a great way to make a second income in 2024.
A better buy
Retail banks can be brilliantly boring stocks to buy during normal times. The interest that consumers pay on their loans and credit cards gives them a constant stream of income they can then distribute to their shareholders.
The trouble is that profits (and by extension dividends) can disappoint during a prolonged period of economic trouble. Impairments can soar and demand for their financial services can sink. Right now this is the danger facing owners of Lloyds shares as the UK economy flirts with recession.
By comparison, Georgia-focused TBC Bank doesn’t face such a outlook. Economists are expecting the Eurasian country’s GDP to grow by mid-single-digit percentages during the next year.
Like almost all banks, TBC’s dividend policy collapsed following the Covid-19 outbreak three years ago. But annual payouts have grown rapidly as trading conditions have recovered (dividends per share rose 48% in 2022). They’re tipped to soar again this year and next.
Passive income of £1k
With a yield of 7.3%, I would need to invest £13,700 in the firm to generate a passive income of £1,000 in 2024. That figure is based on current City forecasts.
Unfortunately I don’t have this sort of money available to spend right now. But by steadily investing over time I have a chance to achieve this sort of annual dividend income in the not-too-distant future.
At the current share price of £28.55, buying four TBC Bank shares a week, or 17 shares a month (worth £485) would unlock that healthy second income in just under three years.
In fact, if broker forecasts prove correct I could hit this dividend target even sooner. City analysts think investor payouts will rise sharply in 2025, for instance, pushing the yield to a gigantic 8.6%.
A top dividend stock
Dividends can never be guaranteed, of course. And as I’ve said above, payouts from cyclical retail banks can collapse when economic conditions worsen.
But that sunny outlook for Georgia’s economy makes TBC Bank a strong buy for dividends next year. It should also continue to benefit from rising banking product penetration rates from current low levels. These twin drivers drove pre-tax profits at the bank 13.8% higher between January and September.
On top of this, the company has a strong balance sheet it can utilise to keep paying big dividends. Its Common Equity Tier 1 (CET1) capital ratio stood at an impressive 17.5% as of September, far ahead of those of any FTSE 100 bank.
Right now I think TBC is one of the FTSE 250’s best stocks to buy for dividend income in 2024. I’d buy with any spare cash.
