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Banco Santander (LSE:BNC) shares have been on fire for a while now. In fact, I was surprised just how well when I checked up on their progress. Because since the start of May, they’re up 53%!
This means anyone who invested £5,000 in the Spanish bank just six months ago would now have about £7,650. Not only that, but a scheduled dividend to be paid on 3 November would add a few more quid to the mix. A bigger final dividend should be paid in May.
The longer-term performance is even more astonishing — Santander stock’s up 108% in 12 months and 420% over five years. Not bad for a 168-year-old bank!
Let’s take a look at this surging stock to see what’s going on.
Very supportive backdrop
Santander isn’t in the FTSE 100 because its primary listing’s in Madrid, though it does have shares trading on the London Stock Exchange. This has undoubtedly helped because Spain’s blue-chip IBEX 35 is the best-performing major stock market index in Europe this year (up 38%).
Indeed, earlier this week it surpassed a previous high set in November 2007. That’s how long it’s taken this bank-heavy index to fully recover from the global financial crisis!
For Santander the business, it’s benefitting from three things. One is that Spain’s economy is really strong right now, boosted by tourism and a strong labour market.
Also, investors like Santander’s exposure to Latin America, where tens of millions are finally gaining access to financial services (largely thanks to smartphones). It has a strong presence in Mexico, Brazil, Chile and Argentina.
Finally, higher interest rates have dramatically boosted profits for all banks, including Santander, which is the euro zone’s largest lender by market value.
Solid Q3
On 29 October, the company reported Q3 net profit hitting a record €3.5 bn, up 8% year on year and beating analyst estimates. Underlying profit jumped 64% in the US, driven by higher lending and corporate banking activity.
This was the the sixth straight quarter of record results. And over the past 12 months, the bank has added more than 7m new customers, bringing the total to 178m worldwide.
For the full year, management expects to hit its target of €62bn, as well as buying back a load more of its own shares across 2026.
Weakness
It wasn’t all milk and honey in the quarter however. Weakness in its second-biggest market (Brazil) saw underlying net profit there fall 5.9% due to currency issues. Argentina remains extremely volatile too.
Meanwhile, the UK unit has delayed the publication of its Q3 results, citing uncertainty around the mis-sold car finance scandal. It has put aside £295m for this, but there’s still a risk it could end up costing more.
Worth a look?
For me, this highlights the importance of Santander’s geographical diversity. Problems in Brazil and the UK were comfortably offset by strength elsewhere. The balance sheet remains solid.
After the massive rally, the shares aren’t cheap anymore, but I’d say they’re still pretty reasonably valued given the growth potential in Latin America. Over the long term, Santander seems set to benefit from this region’s ongoing digital transformation and growth.
With a 3% dividend yield on offer, I think this bank stock’s still worth considering for long-term investors.
