RBS announces first dividend since 2008 bailout

But it’s not all plain sailing for the bank just yet

Article updated: 3 August 2018 9:00am Author: Helal Miah

  • The bank’s encouraging second quarter results reported operating profits well ahead of expectations at £613m
  • The reinstatement of a dividend of 2pence per share will give existing shareholders and fund managers some confidence
  • The Share Centre continues to recommend RBS as a ‘hold’ for investors seeking capital growth and willing to accept a medium level of risk

RBS, the majority state owned bank, reported a very encouraging set of second quarter results which built upon the first quarter numbers and showed good signs of progress. Operating profits in the second quarter came in at £613m, some way behind the first quarter figures but well ahead of expectations. There were still some provisions made to the accounts for the US Residential Mortgage Backed Securities miss-selling scandal while increased competitiveness and liquidity continued to dampen the net interest margin which came in at 2.01%. The Tier 1 capital ratio improved to 16.1% after a £2bn pre-tax pension contribution.

But the most important sign of an increased health of the bank came in the form of the announcement of the first interim dividend since the financial crisis of 2pence per share, this combined with the better than expected profit figures has contributed to the share price rising in early morning trading by a few percentage points. The reinstatement of the dividend will not only give existing shareholders some confidence but also to the large number of fund managers who could not invest in them previously due to the lack of any income and it will make the governments task of offloading its roughly 62% holding onto the market a little easier.

However, this does not mean it is going to be all plain sailing for RBS from here, the group still has many legacy issues to overcome and restructuring is still ongoing including many assets still left to dispose. The dividend hike for the time being means that the income is still very modest and we therefore feel that it is a share for investors seeking capital growth and a longer term recovery in the share price for those willing to accept a medium level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.