2014 has been a positive year for investors in Santander (LSE: BNC) (NYSE: SAN.US), with shares in the bank rising by 8.5% since the turn of the year. This easily beats the hugely disappointing performance of the FTSE 100, which has fallen by 2.7% year-to-date, and shows that banks can be a source of strong share price performance even during a mild downturn.
Of course, there could be much more to come from Santander and it could even help you to retire rich. Here’s how.
Growth Potential
Ultimately, what the market is looking for in any stock is an ability to increase earnings at an above average rate. On this front, Santander scores very highly. That’s because the bank is forecast to increase earnings per share (EPS) by a stunning 24% in the current year and by a further 21% next year. This is well ahead of the wider index growth rate and shows that Santander is a very strong growth play.
Valuation
Clearly, premium growth prospects usually command a premium share price. In this respect, Santander is no different than any other growth stock, since it has a price to earnings (P/E) ratio of 15.1, which is around 15% higher than the FTSE 100’s P/E of 13.2.
However, Santander’s P/E doesn’t seem to be particularly high when the bank’s strong growth forecasts are taken into account. For example, its price to earnings growth (PEG) ratio is just 0.6 and this indicates growth is on offer at a very reasonable price.
Uncertain Yield?
One of the slight concerns regarding Santander has been that it pays out more in dividends than it makes in profit. However, through a mixture of a planned cut in dividends next year, as well as the aforementioned earnings growth prospects, Santander is expected to cover dividends around 1.2 times in 2015. Furthermore, even after a dividend cut, Santander is expected to yield a whopping 6.8% (assuming a constant share price). Clearly, this makes it a hugely appealing income stock moving forward.
Looking Ahead
With Santander offering growth at a very reasonable price and impressive income potential, it looks like a strong buy at present. Of course, with the European economy continuing to post only anaemic levels of growth, the banking sector could yet experience further lumps and bumps in the road ahead. However, with a very attractive valuation, Santander’s share price seems to price such potential difficulties in and, as a result, could help you to retire rich.