Banco Santander: Back Door into Brazil

Although our High Dividend Stocks by Sector Tables don’t break out foreign stocks, there are still some impressive foreign dividend paying stocks to be found there. Spain’s Banco Santander (STD) is the biggest Eurozone bank and has fared much better than most other megabanks during the crisis, partially as a result of stringent Spanish banking laws forcing it to avoid toxic assets.

While other big banks have been forced to curtail spending, Banco Santander raised $7 billion to fund additional Brazilian expansion, by selling a minority stake its Brazilian operation . It’s currently the number 3 bank in Brazil, and it has targeted the hottest area for Brazilian GDP growth – the southern region near Sao Paolo.

Business Week reports that,

Brazil accounted for more than one-fifth of Santander's $6.8 billion in "attributable profit," or net minus capital gains, in the first half of this year. (Attributable profit is the only earnings measure for which the bank provides a breakdown by country.)

That's up from just 11% for the same period in 2008. Analysts say the change is due primarily to the consolidation of Brazil’s Banco Real, which Santander bought for $16 billion in 2007 as part of the ill-fated takeover and carve-upof Dutch financial giant ABN Amro by Santander, Royal Bank of Scotland, and Fortis.

While RBS and Fortis have struggled ever since, Santander's gamble paid off handsomely. Its expanded footprint in Brazil helped offset the bank's slowing operations in other regions—particularly Spain and Britain—during the worst of the downturn. Lending in Brazil, for instance, jumped 16% during the first half of 2009, compared with just 1% in Spain over the same period.

STD is currently yielding around 5%, and also has options available. Investors wanting to improve upon the dividend yield could sell covered calls. The March 2010 $17.50 call option for STD listed in our Covered Call Table is currently worth a $1.15 bid. In addition, you’d qualify for $.16/share in dividends during that period. At STD’s closing price of $17.23, this would equal a 7.6% static yield for just over 4 months, or 21.00%-plus annualized.

Conversely, if you’re feeling skeptical about STD’s current price, which is only 2% below its 52-week high, you may want to look at selling cash-secured Put options against STD. The March $15.00 put that’s currently listed in our Covered Put Table is bid at $.75, which equals over 14% annualized. The breakeven is $14.25.

Investors should be aware that selling covered calls necessitates buying the underlying stock before selling calls against it. When selling cash-secured puts, check your broker’s cash reserve rules – some brokers require a cash reserve equal to 100% of the underlying shares value, while others may require less cash up front.

Disclosure: Author holds no positions in the above mentioned equities.

Comments

[sticktoitiv...:]

"STD is currently yielding around 5%"

That has to be one of the worst ticker symbols of all time. I guess Palmaris Capital already took PMS.

Nov 12 02:06 PM

[skwestorange:]

STD pays a dividend of 68cents (Market watch) a year and that works out to 3.9% not 5% yield. Of course, it is better than most US Banks if the dividend is safe.

Nov 12 04:13 PM