The recent results released by RBS (LSE: RBS) (NYSE: RBS.US) did little to boost the bank’s share price, with many investors seemingly left unimpressed by yet more PPI provisions.
This is understandable: RBS continues to experience more disappointment in the form of fines and charges, which significantly dampen market sentiment and lead to a share price that is pinned back.
However, the key driver for RBS in the long run appears to be rather simple: how quickly can it get back to consistent profitability and, perhaps more importantly for shareholders, when will it start paying a decent dividend.
Indeed, this last point is perhaps being overlooked by the market at present. This is because RBS’s dividend is set to increase at a huge rate of knots over the next couple of years.
It is currently zero; however, in 2014 it is expected to amount to 0.6p per share, putting RBS on a yield of 0.2%. Then comes the growth, with RBS’ dividend forecast to be upwards of 4p in 2015, meaning shares would yield 1.2% in 2015 (should they remain at the current share price).
Admittedly, you may be left thinking that you could get a higher rate of interest (even after tax) from a high-street savings account. However, returning to the first driver mentioned earlier, RBS is expected to return to a consistent level of profitability this year, with earnings per share (EPS) forecasts of 25p in 2014 and 28p in 2015.
So, in both years it is expected to pay out only a fraction of earnings out as a dividend. This could be the reason why RBS may help you to retire early, since many of its banking peers are targeting payout ratios that are far in excess of those promised by RBS.
Therefore, if RBS were to adopt a more generous payout ratio (as peers such as Lloyds and Barclays have done, with the two other major UK–focused banks aiming to payout up to two–thirds and 45% of earnings as a dividend, respectively), it could mean shares either yield a far higher amount in future or else increase in price. Either outcome could help you to retire early.
> Peter owns shares in RBS.