The Motley Fool

This 8%-dividend-yielding FTSE 100 stock has slumped 23%! Is now the time to buy back in?

In this climate I think that steering clear of Royal Bank of Scotland (LSE: RBS) remains a smart bet. Escalating fears concerning the coronavirus have sent it 4% lower in Monday trade. Its share price dropped 23% in February and those fresh drops in start-of-week business take the banking giant to its cheapest since summer 2016, below 170p per share.

There’s some symmetry to RBS’s recent dive. Its plunge to levels not seen since just after the cataclysmic European Union referendum coincides with the beginning of trade talks with the EU today. Recent trading data suggests that the FTSE 100 bank could continue to suffer from Brexit-related turbulence, too. But more of that later.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

As I say, it’s concern over the spread of COVID-19 that has smacked major shares like RBS at the beginning of March. And newsflow for this particular blue chip has been particularly worrying.

Worries continue to mount

Today saw the release of refreshed economic forecasts from the OECD. It made for grim reading across the board as the body downgraded its estimates for the entire global economy (growth of 2.4% is now anticipated for this year).

However, the OECD’s update was particularly worrisome for firms with a high gearing to the UK economy. British GDP is now predicted to grow by a paltry 0.8% in 2020, down 20 basis points from the previous estimate, and giving RBS investors plenty more to chew over.

The country’s banks face another threat from the emergence of the coronavirus, too: the likelihood of more interest rate cuts. The Bank of England earlier today vowed to adopt “all necessary steps” to protect the domestic economy from the fallout.

Profitability across the sector has been crushed by ultra-loose monetary policy since the 2008–09 financial crisis. The suggestion of more rate reductions then should fill them (and their shareholders) with dread.

Brexit bashed

Clearly RBS has plenty to fear should the coronavirus spread. It already has its hands full with Brexit-related uncertainty threatening to persist through 2020 and possibly beyond.

This was illustrated in recent full-year results when it announced that impairments had shot 75% higher in 2020, to £696m. RBS saw its top line suffer, too, as Brexit concerns and intense competition hampered product demand. Net interest income dropped 7% as a consequence, to a shade over £8bn.

The bank expects more trouble in the new year, too. It notes that “in the current environment, and recognising ongoing market uncertainty, we continue to expect challenges on income.” No wonder City analysts now predict that RBS’s earnings will topple by almost a fifth in 2020.

I couldn’t care less about the company’s forward price-to-earnings ratio of below 9 times. You can forget its 8% dividend yield, too. This share’s packed with far too much risk. And things could remain difficult for the foreseeable future should trade negotiations fall flat. 

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.