A special dividend means investors are being paid to wait for a turnaround, but they must be patient.
Royal Bank of Scotland (LSE:RBS) continues its progress apace, although the list of challenges remaining bear testament to the sheer scale of the turnaround the high street lender has faced. The bank is an entirely different beast to the one which entered the financial crisis and only more recently has it approached resembling something which can be regarded as a healthy business.
The acid test in the form of the profit number has more than doubled and, in addition, has beaten expectations. The cash it has been able to generate has enabled the payment of a special dividend in addition to the standard pay out, propelling the dividend yield to around 5%, and immediately switching its appeal from a growth to an income stock.
Meanwhile, there are signs that the legacy issues of regulatory fines may be on the wane, whilst in terms of the key metrics, the capital cushion is full to bursting and earnings per share are up by over 110%.
Source: TradingView (*) Past performance is not a guide to future performance
Meanwhile, the transformation to digital is on a pleasing trajectory and overall costs have been managed down.
However, the cost income ratio not only remains stubbornly high at over 70%, but the longer-term target of under 50% may need to be reconsidered.
Elsewhere, Net Interest Margin (NIM) has fallen, impairments are expected to increase this year, and the Return on Equity figure is low. The NatWest Markets arm endured a difficult period, uncertainty over the eventual outcome of Brexit has hampered business activity and the government stake remains a long-term overhang on the share price.
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There is little doubt that much progress has been made, but investors will need to take a view on how much longer the repairs will take.
Today has provided an extra carrot in the form of the special dividend, whereby shareholders are now being paid to wait, but it is unclear whether this will light any sort of fire under a share price which has declined 12% over the last year, as compared to a 0.5% dip for the wider FTSE 100 index.
It is perhaps reflective of the sometimes steely nature of professional investors, that the market consensus of the shares has recently hardened to a 'strong buy', underlining confidence in prospects for the previously beleaguered bank.
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