57 Reasons Why Banco Santander SA Is A Spectacular Buy

In this article I am explaining why Banco Santander (LSE: BNC) (NYSE: SAN.US) is a lucrative dividend selection.

Smashing dividend yields on the board

Despite the effect of heavy double-digit earnings declines in recent years, Santander has remained a stock market favourite due to its blockbuster dividend profile. And according to current City consensus, the banking goliath is expected to maintain this reputation by shelling out a dividend of 57 euro cents per share this year, in turn smashing the rest of the banking sector’s payout prospects.

Indeed, Santander’s predicted payout for 2014 creates a gargantuan 7.5% yield — this reading not only takes out a forward average of 3.2% for the complete banking space, but a reading of 3.3% for the FTSE 100 is also comfortably surpassed.

This year’s predicted payment represents a slight cut from the 60 cent per share dividend seen in 2013, however, with the bank widely Santanderanticipated to correlate future rewards more closely with earnings performance.

As a consequence, Santander is predicted to cut the dividend once again in 2015, to 50.5 cents. However, this projection still generates a massive 6.6% yield.

Although the economic recovery in Europe remains sluggish at best, particularly in the Spanish bank’s home country, Santander is expecting conditions on the continent to continue to improve — a promising sign for future payouts — and as highlighted by the purchase of GE Capital’s consumer finance business in Scandinavia last week.

The €700m deal will give the bank improved geographical diversification in Europe — the country only sources a fraction of total profits from Denmark, Norway and Sweden — as well as boosting its already-mighty consumer finance operations by giving it access to 1.2 million extra customers. The deal also enhances Santander’s exposure to AAA-rated nations, a crucial factor given the still-fragile state of mainland Europe’s finances.

With the company’s European markets seemingly on the mend, the bank is expected to follow last year’s 74% earnings improvement with increases of 23% and 20% in 2014 and 2015 correspondingly.

News in recent weeks that ratings agency Standard & Poor’s had upgraded Spanish sovereign debt one notch to BBB+ provides further evidence that the worst of the 2008/2009 financial crisis is finally behind the bank. And with the company’s sprawling operations across Latin America also promising to ratchet up long-term earnings growth, in my opinion Santander is in great shape to continue forking out delectable dividends to its shareholders.

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> Royston does not own shares in Banco Santander SA.