Today I am looking at why Standard Chartered (LSE: STAN) could prove a lucrative stock pick for savvy investors.
Here are two numbers that I think help make the case.
5.5
One of banking goliath’s Standard Chartered’s trump cards is the terrific blue chip-busting dividend yield on offer, even though another reduction in the payout appears on the horizon.
In the face of persistent earnings pressure — Standard Chartered is anticipated to follow 2013’s 17% slip with a further 1% drop in this year — City analysts expect the bank to cut the full-year dividend in 2014 to 82.3 US cents per share from 86 cents in the prior 12-month period.
Such an event would mark another humiliating chapter in the firm’s dividend policy, Standard Chartered having got dividends moving higher again after the 2008/2009 financial crisis hammered the balance sheet — the bank has lifted the payout at a chunky compound annual growth rate of 6.4% during the past five years.
Still, investors should not lose sight of the fact that this year’s predicted dividend still creates a gigantic 5.5% yield, obliterating a forward average of 3.4% for the FTSE 100 as well as a corresponding readout of 3.5% for the complete British banking sector.
And the number crunchers expect a 10% earnings uptick next year to get dividends trekking skywards once again. Indeed, a payment of 85.2 cents per share is currently pencilled in, and which drives the yield still higher to 5.7%.
1
The headline takeaway from Standard Chartered’s interims late last month was news of yet another profit warning. As a result of a higher UK bank levy, regulatory pressures and restructuring costs, Standard Chartered now expects profits during the second half of 2014 to drop below those of the corresponding 2013 period.
Still, the company has embarked on a huge operational shake-up in order to resuscitate its ailing fortunes in the cooling growth regions of Asia and position itself for long-term earnings expansion. These measures included shaking up the boardroom, as well as merging its Wholesale and Consumer banking arms, at the start of the year to improve its products and customer service in key markets.
And these manoeuvres appear to be showing the first tentative signs of success, with operating income ticking 1% higher during July-September to $4.51bn. This is a vast improvement considering that revenues for the first nine of the months of the year fell 3% to $13.8bn.
Clearly the bank still has much work to do to return to profitability, including the implementation of a new $400m cost-slashing exercise as well as heavy lifting in markets such as Korea. But I believe the firm’s promising third-quarter performance could be the first step in Standard Chartered’s top line turnaround and a easing of the cyclical pressures of recent times.