Long-term investors can generate extra cash by investing in stocks with high dividend yields. These stocks work best for investors with low-risk appetites. The right time to invest in such stocks is during a bear market when the dividend yield is higher. The share price will eventually move up over time.
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Taking this into account, we have shortlisted two Spanish banks, Banco Bilbao Vizcaya Argentaria (ES:BBVA) and Banco Santander (ES:SAN) to build a good dividend portfolio.
Let’s see what’s working for these stocks.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
Based in Spain, BBVA is among the leading financial institutions in the world, with a presence in 25 countries. The company provides banking and asset management services to around 80 million customers.
In October 2022, the bank declared its third-quarter results for the year. BBVA posted a 46% jump in its net attributable profit of €4.84 billion. The lending business stood out in the results with 15% growth. This in turn pushed the net interest income to €13.8 billion, which was up by 32.6% year-on-year.
The bank’s journey to becoming a digital, data-driven institution is already paying off. In the first nine months of 2022, BBVA acquired 8.6 million customers, of whom 55% joined through digital channels. This number was just 7% in 2017.
Moving on to dividends, the bank’s profitability makes room for the shareholders’ return, quarter-after quarter. The bank’s net tangible book value plus dividends increased by 20% to €7.6 per share. The greater this value, the better the protection for shareholders in the event of uncertainty. It includes an interim dividend of €0.12 per share, up by 50% from last year’s dividend.
Is BBVA a Buy or Sell?
According to TipRanks, BBVA stock has a Moderate Buy rating, based on six Buy and five Hold recommendations. The BBVA target price is €6.88, which is 22% higher than the current price level.
Analyst Marta Sanchez Romero from Citigroup has the highest target price of €7.8, which has an upside of 38.4%.
Banco Santander S.A.
Banco Santander, or Santander Group, is a major financial institution in Spain that serves around 159 million customers.
The bank’s stock has still not returned to the level it was before the outbreak of COVID-19. In the last three years, it has fallen by around 17%. But, in the last three months, the share price has shown some strength and gained 17%. The stock has a beta of 0.57, which suggests a smoother ride as compared to the overall market.
The company has been a consistent dividend payer but had to cut it in 2020 as a response to COVID, which was later resumed in 2021. Since then, its earnings have been pretty much able to cover the dividend payouts.
The TNAV (tangible net asset value) as of September 2022 for the bank was €4.31, which grew by 3% from the last quarter, including €0.058 in dividends. The dividend yield of Santander is 3.06%, while the sector average is 2.1%.
Moreover, the P/E ratio for the stock is 4.9, which is less than its competitors and makes it look undervalued. BBVA has a P/E ratio of 5.9, CaixaBank, S.A. (ES:CABK) has a P/E of 10.
The bank’s attributable profits for the first nine months increased by 34%, driven by higher net interest income, cost control measures, and lower regulatory charges.
Is Santander Bank Stock a Good Buy?
According to TipRanks’ analyst consensus, Santander stock has a Moderate Buy rating, based on six Buy and four Hold recommendations.
The average target price is €4.1, which has an upside potential of 46% from the current price level.
Conclusion
Globally, banking stocks are under pressure, and share prices may remain volatile. During these times, the stable dividend income comes as a relief for investors.
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