Standard Chartered (LSE: STAN) is a bank that survived the banking crisis relatively unscathed, and that was largely because it does a large part of its business in China and the rest of the Far East — it kept away from the overexposure to bad property loans that triggered the collapse.
But that safety factor could turn into a dampener on earnings and dividends, should we see anything more than a gradual slowing of Chinese growth — property prices have been booming, and the country’s credit markets have been getting a bit hot.
Chinese shock?
The Chinese economy is expected to grow by about 7.5% this year, although the government is aiming for a slightly lower figure as it tries to shift its focus away from government-led growth and more towards the private market.
But what is the dividend picture at Standard Chartered looking like?
Yields have been modest, but rising, and reached 3.7% for the year to December 2013. That’s been on the back of generally-rising, but slightly erratic, earnings per share (EPS) — we saw a dip last year, but EPS should be back up this year.
Rising yields
This year’s forecasts suggest a dividend yield of 4.2%, although that rise is largely due to the falling share price — with those worries about China, it’s dropped 10% over the past 12 months to 1,257p while the FTSE has gained 11%. And there’s a yield of 4.5% pencilled in for 2015.
But the dividends are looking pretty well covered by earnings — last year’s payment was twice-covered, and it looks set to rise to cover of 2.3 times for 2014 and 2.4 times for 2015, based on the latest forecasts.
The bank is, then, being relatively cautious in its dividend rises while still being able to offer a decent yield. And with last year’s annual report, Chairman Sir John Peace pointed out that Standard Chartered has “increased the amount of dividend paid each year for well over a decade“. And in these days of critical examination of executive pay, he stressed that the bank pays out around twice as much in dividends as it does in staff bonuses — in 2013, the bonus pool was apparently reduced by 15% from 2012.
Generally positive
City analysts seem a bit mixed on Standard Chartered, but they’re generally coming down on the Buy side.
With the shares on a forward P/E of a modest 10, dropping to 9.4 on 2015 forecasts, and with those dividend yields of better than 4%, I’m cautious but optimistic.