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How Safe Are Dividends At Barclays PLC, HSBC Holdings plc, Standard Chartered PLC & Banco Santander SA?

The mark of a good long-term investment is not just the level of dividend income it provides, but the relative safety of that cash stream — as income investors who plumped for banks found out only too painfully when the great crunch arrived.

But over the long term, just how safe are banking dividends? I’ll leave out the two bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland as their dividends have not yet recovered from the banking crisis, and today I’ll take a look at Barclays (LSE: BARC)(NYSE: BCS.US), HSBC Holdings (LSE: HSBA), Standard Chartered (LSE: STAN) and Banco Santander (LSE: BNC).

Dividend slashed

It’s true that Barclays was forced to slash its dividend in 2009, and that in the intervening years it’s provided yields of only around 2% to 3%. The expected dividend for 2014 (with results due on 3 March) is around 2.5% on the current 264p share price, and that’s below the FTSE 100 average for sure.

But these past few years have been the worst in living memory for the banks, and we’re already looking at forecast yields of 3.6% and 4.6% for the next two years. And prior to the crash, Barclays was one of the best dividend payers around.

A plunge in 2014 earnings came as a bit of a shock for HSBC, but that bank’s focus on Asia has helped keep it relatively insulated from the Western malaise, and 2009 brought a relatively mild dividend cut of 45%. But it sill yielded 3.6% that year and is back around pre-crash levels today to yield 5.3% on a price of 570p — with forecasts of 5.9% and 6.4% on the cards.

Chinese worries?

Things have been similar at Standard Chartered, with the dividend barely affected throughout the crash. For the year just ended there’s a 5.4% yield predicted, remaining steady for the next two years, with results due on 4 March — the shares are currently at 922p. Like the others, these yields should be well covered and the banks’ liquidity ratios are better than they’ve been for a long time.

The risk with HSBC and Standard Chartered is that there will be a Chinese slowdown, but people have been predicting that for years and we’ve yet seen nothing.

Finally, perhaps the strangest of the bunch is Banco Santander, which for years has been offering very high dividend yields way in excess of earnings — it got away with it because most Spanish shareholders took scrip dividends and the cash wasn’t needed, but that just dilutes the equity and isn’t sustainable.

New broom

Since Ana Botin took over the role of executive chairman after the death of her father last year, the bank has refocused on a conventional dividend plan to offer around 3.8% on a 470p price, and that should finally be well covered by earnings.

So how solid are these banks’ dividends? Well, considering what’s happened and looking to the long term, I’d say the future for banking cash is looking good.

Investing in good banks for the long term and reinvesting all that dividend cash could help you to Buffett-style wealth.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.