Dividends from Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US)?
Well, the obvious answer is that they’re non-existent, and so don’t even register on the “strong” scale. In fact, there hasn’t been an annual cash handout from RBS since the 33.2p paid from 2007’s profits — and it’s a sobering thought that that level of cash would provide a yield of more than 10% on today’s 331p share price!
So no, the question to ask of RBS is when will the bank start paying dividends again, and once the payouts are resumed, how good and reliable will they be?
Playing catch-up
Well, RBS is not as well advanced as fellow bailed-out bank Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), which is hoping for approval from the Prudential Regulation Authority (PRA) to resume dividend payments in the second half of this year. With its Tier 1 capital ratio nudging close to the 11% that the PRA is thought to be seeking, there’s every chance that approval will be given.
Analysts appear confident, offering a consensus forecast for around 1.4p per share. On a 75p share price, that would yield a shade under 2%. And then for 2015, the City is predicting a solid 4.3%.
But back at RBS, there’s not going to be any cash this year — 12 months ago we’d been expecting dividends to return in 2014, but that was wishful thinking.
And we don’t really have any concrete guidance from the company to go on — all the bank talked of at the time of its 2013 annual results was “an ability to recommence dividends over the medium term“, and at first-quarter time this year we heard no more.
Capital ratios looking fine
To get some idea of when dividends might return, we could take a look at RBS’s capital ratios. As of December 2013, the bank recorded a Core Tier 1 ratio of 10.9%. Strong capital ratios are important to ensure the company can meet its dividend payments from profits and not expose its reserves to risk, but that’s where RBS loses out right now – no profits!
RBS actually recorded a pre-tax loss of £8,243m in 2013, but things aren’t quite as bad as that headline figure might suggest. Regulatory costs, redress provisions, and losses from the establishment of RBS Capital Resolution swallowed up billions, and RBS reckoned it actually made an operating profit of £2,520m.
Once RBS is back to stable profits, dividends should be a formality — but the problem is, it’s still not clear when that will be. There’s a pre-tax profit of around £4.1bn forecast for the current year, but that’ll be too early to provide enough confidence to start handing out cash.
Maybe next year
For 2015, there’s a pre-tax profit rise to £4.8bn predicted, and that might be enough to swing it. But I really can’t see any dividends being paid before the second half of next year, and even then we’re unlikely to see anything but a very small yield.