RBS share price: what’s the outlook after special dividend?

In its half-year results on July 31, Royal Bank of Scotland (RBS) announced a special dividend of 12p a share, which wasn’t enough to offset a disappointing outlook, with its share price tumbling more than 9% in the days that followed.

The £1.7 billion pay-out, of which £1 billion will return to the taxpayer on account of the UK government’s 62% stake in the bank, saw its value undermined by RBS warning investors that it was ‘unlikely’ to hit its targets next year due to Brexit-related economic and political uncertainty.

RBS posts mixed half-year results

Total income at the UK lender rose by 6.2% in its first six months of trading, but the increase was driven by one offs that without would have led to revenue sliding 1.7% as the bank continues to wrestle with interest margin pressure.

‘RBS has done a lot of good work recently,’ Hargreaves Lansdown equity analyst Nicholas Hyett said.

‘Fines relating to the financial crisis are settled, the government has begun selling down its stake and the bank has paid its first dividend since 2008 - with a chunky special dividend at the half year thrown in as an extra sweetener.’

But despite its successes, he adds, the bank continues to face a myriad of challenges over the next 12 months of trading, with the low interest rate environment and the highly competitive mortgage market hurting lenders net interest margins.

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No-deal Brexit could hurt RBS profits

With the prospect of a no-deal Brexit looking increasingly likely since Boris Johnson has entered Downing Street, RBS and other UK lenders have a tough road ahead them.

RBS continues to cut costs to offset it weak 2020 guidance, while it tries to unwind the taxpayer’s stake and return the bank to private hands – though the government may continue to be a reluctant seller given the lender’s lacklustre share price.