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RBS exceeds dividend forecasts

However, the state-backed lender warned of a rise in bad debts for 2019
February 15, 2019

Royal Bank of Scotland (RBS) may have lagged its peers when it comes to shareholder returns but it's now firmly back in the dividend-paying club. The state-backed lender paid a 7.5p special dividend for 2018 which, together with ordinary dividends, took the total payment 55 per cent ahead of consensus expectations. Management plans to reduce its common equity tier one (CET1) ratio from 16.2 per cent to 14 per cent by 2021, as it returns further capital to shareholders and carries out directed buybacks of the UK government’s stake.

IC TIP: Hold at 243p

Annual pre-tax profits beat market expectations thanks to higher trading income, reduced operating expenses and a fall in impairment losses. However, ongoing geopolitical uncertainty prompted bosses to warn of rising bad debts in this year, and potential difficulties in meeting a cost-to-income target of less than 50 per cent by 2020.

A competitive mortgage market put pressure on the net interest margin at the personal and business banking division, which declined from 2.86 per cent to 2.78 per cent. Commercial and private banking margins were also squeezed, although operating profits benefited from a 60 per cent reduction in impairment losses.

Analysts at Investec forecast adjusted net tangible assets of 295p a share at the December 2019 year-end, up from 287p the same time the prior year.

ROYAL BANK OF SCOTLAND (RBS)  
ORD PRICE:243pMARKET VALUE:£ 29.3bn
TOUCH:243.2-243.5p12-MONTH HIGH:297pLOW: 200p
DIVIDEND YIELD:2.3%PE RATIO:18
NET ASSET VALUE:380pLEVERAGE:17.2
Year to 31 DecTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201415.22.640.5nil
201512.9-2.70-27.7nil
201612.6-4.08-59.5nil
201713.12.246.3nil
201813.43.3613.55.5*
% change+2+50+114-
Ex-div:21 Mar   
Payment:30 Apr   
*Excludes special dividend of 7.5p a share