SAB.MC

Summary

Banco Sabadell is a major Spanish bank with a solid market position, trading at an attractive valuation. The 5.9% dividend is highly secure, evidenced by a very low 35% payout ratio, with management signaling future increases. Recent positive catalysts, including an S&P outlook upgrade, suggest improving fundamentals. Trading at €3.36, near the low end of our fair value estimate of €3.2-€6.0, this presents an attractive entry point for dividend investors seeking a combination of value, secure income, and potential for capital appreciation.

Sector Context

As a bank, standard debt metrics like Debt/EBITDA are less relevant. The Debt/Equity of 1.85 is very low and indicates a strong capital position. The ROE of 12.50% is a key metric and is above the desirable 10% threshold. The low payout ratio of 35% is unusually conservative for a bank, suggesting the dividend is exceptionally safe with significant room for growth, a point reinforced by recent management statements.

✓ Why We Like It

• • Attractive valuation with a P/E of 8.4, which is in the strategy's 8-15x sweet spot.
• • Strong and sustainable dividend yield of 5.93%, supported by a very conservative payout ratio of 35%.
• • Positive recent catalysts, including an S&P outlook upgrade and management signaling higher future dividend distributions.
• • Solid banking fundamentals with a Return on Equity (ROE) of 12.50%, exceeding the 10% target for quality banks.
• • The current price of €3.36 is at the low end of the fair value range of €3.2-€6.0, indicating potential for capital appreciation.
• • Very low Debt/Equity ratio of 1.85 for a bank, indicating a conservative balance sheet.

⚠ What to Watch

• • The banking sector is inherently cyclical and sensitive to macroeconomic conditions.
• • History of dividend cuts during past crises (2017, 2019, 2020), although these have been classified as temporary and the bank has since recovered.