RBS to pay dividend for first time since financial crisis
RBS released its H1 2018 results today, where it announced the intention to pay an interim dividend of 2p per ordinary share.
Analysts expect the bank to pay out 8p a share in total for 2018 and 15.4p in 2019, enough for a 3.2% dividend yield this year and 6% next year, according to Russ Mould, AJ Bell investment director.
He said: “Both figures easily beat anything that can be earned from cash in the bank or UK Government bonds.”
While the bank – which is still majority owned by the state – has overcome major obstacles such as the $4.9bn settlement with the US Department of Justice over the US Residential Mortgage Backed Securities (RMBS) miss-selling scandal, it does still face challenges.
Operating profits in Q2 came in at £613m, some way behind the Q1 figures but well ahead of expectations.
Helal Miah, investment research analyst at The Share Centre, said: “However, this does not mean it is going to be all plain sailing for RBS from here, the group still has many legacy issues to overcome and restructuring is still ongoing including many assets still left to dispose.
“The dividend hike for the time being means that the income is still very modest and we therefore feel that it is a share for investors seeking capital growth and a longer-term recovery in the share price for those willing to accept a medium level of risk.”
Mould added: “As with Lloyds and Barclays, investors will therefore be hoping that RBS can stay out of trouble and the regulators’ sights, lend sensibly and keep costs in check, to help fund those precious future dividend payments.
“Any downturn in the global economy – no matter how unlikely that seems at the moment – would be an unwelcome development as it could put pressure on the loan book and expose the bank to fresh loan impairments if customers get into financial difficulty.”
RBS/NatWest announced profit before tax of £1.8bn for the period. It also confirmed provisions totalling £5.1bn to date for PPI claims, and as at 30 June 2018, £4.4bn had been paid out.