Banking stocks have enjoyed a strong start to the year. The change in sentiment around expecting fewer interest rate cuts from developed nations has been a key factor here in the sector outperformance. I’ve spotted a FTSE 250 bank that has done well but also includes a juicy dividend yield. Here are the details.
The quick view
I’m talking about TBC Bank Group (LSE:TBCG). Of all the banks within the FTSE 100 and FTSE 250, I’d argue this is lesser known. This is because it doesn’t have large retail operations here in the UK, but rather in Georgia.
Aside from Georgia, it also operates in nearby Uzbekistan. The big push for the bank (in a similar way to the UK) is a pivot to digital banking. However, the nature of the Georgian economy means that it’s at an early stage of take-up. It’s accelerating quickly, with daily digital active users up 24% versus the end of 2022.
The bank is also well positioned to take advantage of the growing Georgian economy. In contrast to the poor GDP growth here in the UK, the Georgian economy grew by 6.8% in 2023! Banks tend to outperform when the broader economy does well. This is evident with the 38% share price growth over the past year for TBC.
Earnings help to support dividends
The latest set of financial results reflect a positive outlook for income investors. Revenue for 2023 jumped by 27.8%, with profit before tax up 7.9%. In a similar way to other banks, it benefitted from higher net interest income thanks to elevated interest rates.
As a result, a generous dividend was announced. When I combine this to the other dividend paid within the past 12 months, the total payment was £2.13 per share. Putting this together with the current share price of £31.25, I get a dividend yield of 6.81%.
This is significantly higher than the FTSE 250 average yield of 3.37%. I’m impressed as the share price has been tracking higher, which acts to push down the dividend yield. Yet thanks to the high dividend per share payments, the yield has remained above average.
However, the fact that the stock trades at a high price might put off some investors that only have a small amount of money to invest.
Building my second income
If I invested £310.25 right now, I’d have 10 shares in TBC. In theory, this would pay me £21.30 in income over the next year. If I assumed that the share price stated the same and I invested £310.25 each month for the next year, my second income would keep rising.
With 120 shares by this time next year, I could then look to pocket a tidy £255.60 for the following year. I can either spend this as it comes, or reinvest it for further benefits.
My risk here is the broad assumptions I’ve made. For example, future dividends aren’t guaranteed. If TBC has problems domestically, it could cut the income payments. After a strong run, the share price could fall in the next year, eating away at my total return.
I do have to make some kind of forecast though, and feel I’ve been realistic here. On that basis, I’m seriously considering buying this stock for my portfolio.
