Does Banco Santander SA Deserve A Place In Your ISA?

There are only 17 days left to use up your ISA allowance for this year. If you are thinking about using your full allowance for this tax-free wrapper, it’s time to start thinking about which shares will make the best ISA investments. 

The tax-free nature of the ISA wrapper means that it’s the perfect place to invest for the long term, and use the power of tax-free compounding to ignite returns. With that in mind, there are really two key traits that the best ISA shares should have.

Firstly, the company in question should offer an attractive dividend yield and secondly the company should have a solid plan for future growth. 

Santander (LSE: BNC) ticks both of these boxes. The bank offers an attractive dividend yield and has set out an aggressive plan for growth under the stewardship of new CEO, Ana Botin.

Accelerated growth 

Santander has several growth initiatives under way that will help drive growth over the next decade. And key to the bank’s growth is its expansion into the digital market. 

Santander has 92m retail customers globally, of which only 12.2m do most of their banking with Santander. Management has stated that it wants to hike this figure to 17m by 2017, which the bank believes could add €2bn to €3bn of additional income.

What’s more, Santander is also going to expand its balance sheet over the next few years, in order to grab a larger share of the lending market. Indeed, the bank wants to expand its risk-weighted assets by about 6% in 2015 through more lending to customers. 

Acquisitions are also on the table. Analysts have highlighted several of Santander’s smaller European peers could be in the bank’s crosshairs. 

Well placed for growth 

Santander is dreaming big and the company has all the tools it needs to be able to achieve its targeted growth. 

For example, after raising $13bn through a placing with investors earlier this year, the bank’s core capital ratio is set to reach 10% to 11% by 2016 — one of the best capital ratios in Europe.

Moreover, last year was a key milestone year for the bank. For the first time since the financial crisis, profits rose in all of the bank’s key markets. Return on equity –a key measure of bank profitability — increased from 5.8% to 7%, the group’s cost income ratio for the year fell below 50% and net profit nearly doubled. 

City analysts expect the bank’s earnings per share to expand 15% this year, followed by growth of 13% during 2016. 

Valuation attractive 

Unfortunately, Santander cut its dividend payout earlier this year, although the bank still supports a yield of 3.5%. The payout is now covered twice by earnings per share. 

Further, the bank is currently trading at a forward P/E of 12, which looks cheap compared to analysts’ growth projections. 

So all in all, Santander looks to be the perfect ISA investment. The bank is currently trading at an attractive valuation, is well placed for growth and offers an attractive dividend yield.