Banco Santander, S.A. (ADR) (SAN), Banco Bilbao Vizcaya Argentaria SA (ADR) (BBVA): You Should Beware These High-Dividend Payers

A proposed alternative

I have been looking at a viable alternative to Spanish high dividend payers. I found it in HSBC Holdings plc (ADR) (NYSE:HBC). The bank trades at a similar price to tangible book value multiple to Santander (which trades at 2013 134% price to tangible book value) and has a growing cash dividend. HSBC Holdings plc (ADR) (NYSE:HBC), with a payout ratio expected at 62%, currently pays a 4% cash dividend yield and is selling non-core assets and cutting costs in order to achieve the targeted 10.5% Basel 3 core capital ratio. After reaching its targeted capital ratio, the bank will return more cash to its shareholders.

The good news is that the bank is close to achieving its capital target. HSBC Holdings plc (ADR) (NYSE:HBC) has a Basel 3 core capital ratio of 10.1%. Hence, higher capital distributions are not as far away as the market seems to be expecting. I think HSBC Holdings plc (ADR) (NYSE:HBC) is a great option for those scared of the consequences of a potential dividend cut at Spain’s biggest bank.

Foolish conclusion

I do not think that a dividend cut from Santander or BBVA is around the corner. That said, the Bank of Spain might want to limit cash dividends in the near future. Actually, a recent IMF report suggested that given current risks, cash dividends should be constrained. With this risk in mind, it’s good to start thinking of alternatives. I think HSBC Holdings plc (ADR) (NYSE:HBC) is a superb option with a great and growing dividend yield.

The article You Should Beware These High-Dividend Payers originally appeared on and is written by Federico Zaldua.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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