It’s been a funny 2024 so far for Banco Santander (LSE: BNC) shares. They started the year at 329p and by May had reached 414p, a five-year high.
This briefly made Santander the eurozone’s biggest bank by market value (above BNP Paribas). Since then, however, the share price has fallen back to 340p, representing a 3.3% rise.
This means a £10,000 investment made at the start of January would now be worth £10,334 on paper. There would also have been a dividend in May, taking my return above £10,500.
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Is that any good? Not really, I’d argue, particularly when Lloyds‘ share price is up 15.7% year to date, while Barclays has surged 35.3%. Both have also paid dividends.
Plus, Santander’s main listing is in Madrid, where even the IBEX 35 (Spain’s main index) is up 5.7% in 2024. So that’s also disappointing.
What’s been going on?
The Spanish bank has a globally diversified business model. Its strong presence in Europe provides a stable revenue base, while its growing footprint in Latin America offers exciting growth opportunities.
In the past though, Santander has come under fire from some shareholders for being a bit stingy with its dividend distribution. So in February 2023, it announced that it would increase the payout ratio (the proportion of earnings distributed to shareholders) from 40% to 50%.
Moving towards this policy, it returned more than €5.5bn in dividends and share buybacks last year as net profit hit a record €11.1bn. In Q2, its net profit rose 20% year on year to €3.2bn thanks to solid results in Spain and Brazil.
It appears the stock has fallen lately because investors fear its very strong net interest income (NII) numbers have peaked. NII is the difference between interest earned on loans and that paid out on deposits.
Longer term however, I’m bullish on the bank’s growth prospects in Latin America. As many as 30% of people in Brazil and 50% in Mexico do not even have bank accounts yet. The opportunity is very large.
Of course, the region isn’t without risk. There often seems to be a major economy experiencing difficulties there, with Argentina being the latest example. Such conditions can increase loan defaults.
Should I invest?
I currently have two bank stocks in my portfolio. These are HSBC and Bank of Georgia, which yield 7.4% and 5.5%, respectively. By comparison, Santander’s yield is just 4.1%, even after increasing the payout ratio.
That doesn’t catch my eye, especially when a FTSE 100 index fund offers a 3.6% yield without taking on stock-specific risk.
But what about that lovely Latin America growth opportunity? Well, one of my largest holdings is MercadoLibre, the e-commerce leader across the region. Its Mercado Pago fintech platform now has 52m monthly active users and in Q2 its assets under management grew 86% year on year to $6.6bn.
It has applied for a banking licence in Mexico and wants to become the region’s leading digital bank. This positions it as more of a rival to traditional lenders like Santander.
I’m currently happy to get exposure to the growth of financial services in Latin America through MercadoLibre.
