Banco Santander’s Fourth Quarter Profit up 70%

Yesterday Banco Santander reported a 70% jump in fourth quarter profits versus the same quarter in 2013. The Global Income Edge Aggressive Portfolio holding made $1.65 billion, and said the gains came from improvement in its lending business and fewer funds needed to be set aside to cover potential losses.

 A statement from the Spain-based bank (NYSE: SAN) said that for the “first time since the start of the global economic crisis, gross profit increased in the ten main markets where the group operates.”

 Further, confirming forecasts of improvement in the Eurozone, net profit in the Spanish market nearly tripled, and the United Kingdom replaced Brazil as Santander’s most profitable market after a 43 percent surge in new mortgage lending last year.

 Meanwhile, expectations of improved performance at the bank have also increased as a result of the change in management. Santander’s new boss, Ana Botin, has made big changes since taking over, such as streamlining operating divisions, and replacing some top executives. She replaced her father when he died in September,

 For income investors, Botin’s move to cut its dividend wasn’t welcome news. But she largely changed the payments to cash from all stock (scrip dividend), which makes the income less dependent on the movement of the stock, which had been depressed for many years and highly volatile.  

 Her move to put the bank’s balance sheet on firmer footing will mean dividends in future years may outperform those from previous years, as the bank becomes stronger and more profitable.

 Dividends from 2015 earnings will be cut to 0.20 euros per share, from 0.60 euros previously, with three-out-of-four payments to be made in cash. The final payment is offered as a as scrip dividend.  For investors this may amount to roughly a 30% to 50% cut in a worst case scenario from last year. However, many analysts believe that Santander’s improved earnings this year could mean significant share appreciation that would bolster the value of the scrip dividend as well as investors’ total return.

Consensus earnings are forecasted to increase 14.8% over last year and analyst expect earnings growth next year of 17.7% over this year’s forecasted earnings. 

 

Stock Talk

LouisB

LouisB

san reduced dividend will amount to how much per share in terms of us dollars andwhat is the dividend date?

Richard Stavros

Richard Stavros

Louis –
Thank you for your question. Banco Santander traded ex-dividend on January 09, 2015. A cash dividend payment of $0.180165 per share was scheduled to be paid on February 09, 2015. Shareholders who purchased SAN stock prior to the ex-dividend date are eligible for the cash dividend payment, according to the Santander Web Site.

Santander generally pays dividends four times a year. These are usually paid in February, May, August and November. Traditionally, Santander has paid standard cash dividends, but in recent years has offered its shareholders the Santander Scrip Dividend Scheme for certain payments, as noted above.

The Euro and the Dollar have converged and the dividend of .20 euros per share equates to .23 U.S. cents. Most analysts are predicting an estimate of a gross dividend of 3% to 3.5% but this number could be higher or lower in 2015, depending on earnings and stock performance (scrip dividend) Analysts have predictions of a forward dividend yield of 4.5% between 2016- 2017.

I hope that was helpful.

Richard

FawltyTowers

Philip Hendricks

Hello

What percent of dividend payments are withheld for Taxes on the Spanish side? Is it recoverable on the US side? Can it be used to offset US income taxes?

Thank you

Richard Stavros

Richard Stavros

Hi Phillip –
Please excuse the delay in responding – have been checking with various tax experts I know. Obviously your tax accountant will be best able to help your specific circumstances – but here are the general details.

In Spain dividends, interest and capital gains are subject to a 21% withholding tax rate. Though I should note that many of our Global Income Edge portfolio holdings do not have a withholding tax, such as those in the United Kingdom or Hong Kong, for example.

In some cases, such as with Banco Santander dividend withholding can be avoided by taking additional shares as a dividend payment instead of cash. While the cash dividend is hit with 21% dividend withholding tax, those who opt for the scrip dividend avoid the tax by accepting additional shares. Santander expects to continue this scheme in 2015 (though always subject to its annual shareholder meeting).

To your next question, as noted in IRS literature the foreign dividend withholding can be recovered in certain situations. As you may know, to avoid double taxation, the IRS allows taxpayers to claim either a deduction or credit on their tax returns to make up for some of their foreign taxes.

But it should be noted that shares held in an IRA are not eligible for this tax recovery and this should be noted when considering which firms to place in the IRA.

Deloitte puts together a useful list every year of withholding tax rates for the world. Here is the link: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-withholding-tax-rates-2014.pdf

All the best –

Richard

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