Today I am looking at banking giant Standard Chartered‘s (LSE: STAN) (NASDAQOTH: SCBFF.US) dividend outlook past 2014.
Dividends expected to keep on rolling
Standard Chartered spooked investors when it issued a profit warning at the start of December. The bank warned that weakness in a number of its emerging markets — particularly in Korea — on top of adverse currency movements are likely to weigh on near-term revenues and profit.
The City’s number crunchers anticipate these problems to cause earnings per share to fall 9% for last year. However, these problems are viewed as a temporary roadblock to growth, with bouncebacks to the tune of 11% and 10% anticipated in 2014 and 2015 respectively.
A backdrop of near-consistent earnings growth dating back to 2008 has enabled Standard Chartered to consistently raise the full-year dividend, and the bank boasts a punchy compound annual growth rate of 6.4% over the past five years.
And forecasters expect the firm to maintain this upward momentum, with a 4.4% increase pencilled in for last year to 87.7 US cents per share despite the predicted earnings fall. The subsequent earnings rebound, meanwhile, is expected to cause the payout rocket 8.4%, to 95.1 cents, during the current year, with an additional 8.2% rise expected in 2015 to 102.9 cents.
These anticipated payments create yields of 4.3% and 4.7% for this year and next, far surpassing a forward reading of 3.6% for the entire banking sector and corresponding readout of 3.1% for the FTSE 100.
Standard Chartered has consistently furnished investors with ample dividend coverage above the security benchmark of 2 times prospective earnings. And current earnings projections keep this trend in place for at least the next two years — a reading of 2.4 times runs through to the end of 2015 is in place.
Fears over Standard Chartered’s capital position has caused some to wonder about dividend growth further ahead, however, given the slow rate of growth in its Tier 1 capital ratio. But as broker Investec points out, a reading of 10.6% during the first half of last year surpasses most of its banking peers, while a forecast 11.3% for 2016 is a more than adequate figure.
Fellow Standard Chartered bulls have also been cheered by the recent appointment of Mike Rees as Deputy CEO of the freshly-merged Wholesale and Consumer Banking divisions as a positive, given his success in driving stratospheric growth in the Wholesale arm.
In my opinion, Standard Chartered is in a great position to hurdle the current earnings hiccups and post stunning earnings — and consequently dividend — growth. The bank continues to witness double-digit expansion in key markets such as Hong Kong and India, and I expect a restructured and refocussed Standard Chartered to expand its position in these lucrative developing regions.