“Dear David, Regarding the current search for yield climate and dividend paying reliability I noticed the remarkable dividend quoted by Santander bank of 8% which probably explains its strong performance this year. What are the future prospects for maintaining this? Do you use any method for evaluating dividend reliability in the general market?”

David Fuller's view

Thanks for an interesting email which is likely to be of relevance for some other subscribers.

Ordinarily, at this stage of a global stock market recovery, albeit one in which southern Europe has been a serial laggard, I would regard an 8% bank yield as risky in terms of a potential cut.  Moreover, Santander tested its 2009 low in mid-2012 but is currently doing well, as you point out. European banks have been helped enormously by Mario Draghi of the ECB, so I will worry less while he remains in charge.  You can check the key fundamentals for any of these shares online.  Earnings are the key and they started to recover in 2013.  Santander obviously requires further growth because the dividend cover is only 0.85.  In other words, if that does not get well back above 1 and stay there, the dividend is unsustainable beyond the medium term.  Price to book is OK at 1.22, according to Bloomberg.  My guess in an uncertain world is that Santander is currently OK and it will want to maintain the dividend and share price because it is still on an acquisition trail, as you will read in the ‘Latest News’ from the LSE.  However, keep an eye on the chart action and monitor news on the LSE site to stay informed.