Is BBVA Stock Still a Buy After a 75% Rally and a Dividend Hike?
The question of whether Banco BilbaoBBVA-- Vizcaya Argentaria (BBVA) remains a compelling investment hinges on three pillars: valuation, earnings sustainability, and long-term shareholder yield. After a 601% surge in stock price from 2020 to 2025—driven by a 96% rally in 2024 alone—investors must weigh whether fundamentals justify the optimism.
Valuation: Cheap or Overdue for a Correction?
BBVA's trailing price-to-earnings (P/E) ratio of 9.33 and forward P/E of 9.09[1] appear attractively low compared to the U.S. banking sector's average P/E of 14.8x[4]. Similarly, its price-to-book (P/B) ratio of 1.55[1] lags far behind the industry's 4.0x benchmark[4]. These metrics suggest the stock is undervalued relative to peers. However, the price-to-cash flow (P/CF) ratio tells a different story. BBVA's P/CF of 52.17[1] dwarfs the sector's average of 4.02[4], raising concerns about its ability to generate positive free cash flow. For context, BBVA's 12-month free cash flow for June 2025 was reported at -$29.48 billion[4], a stark contrast to its robust earnings. This disconnect between earnings and cash flow highlights a critical risk: while profits are growing, operational or capital expenditures may be eroding liquidity.
Earnings Sustainability: A Tale of Strong Margins and Prudent Capital
BBVA's financial performance in 2025 has been nothing short of stellar. Net attributable profit hit €5.45 billion in the first half of the year, a 31% year-over-year increase[2]. Its return on tangible equity (ROTE) of 22% for 2025–2028[2] and a CET1 capital ratio of 13.09%[3] underscore a resilient balance sheet. These metrics suggest the bank is not only profitable but also well-capitalized to sustain growth.
Profitability is further bolstered by a declining dividend payout ratio. While BBVABBVA-- maintained a 45.83% payout ratio in 2023[2], it has since dropped to 37.41% in 2025 estimates[2], indicating a strategic shift toward retaining earnings for reinvestment or debt reduction. This prudence is crucial in a sector where earnings volatility remains a persistent risk.
Shareholder Yield: Dividends and Buybacks in Harmony
BBVA's shareholder yield strategy has evolved into a dual-engine model. The dividend yield currently stands at 4.02%[6], with the 2025 interim dividend expected to rise 81% year-over-year to €0.29 per share[4]. Meanwhile, aggressive share repurchases have amplified returns. Since 2022, BBVA has repurchased 14% of its shares for over €5.3 billion[4], including a €1 billion extraordinary buyback in 2023[5]. Academic studies on the banking sector confirm that such repurchases can enhance return on equity (ROE) by reducing share counts, a dynamic reflected in BBVA's ROE of 17.68% as of June 2025[5].
The bank's 2025 shareholder payout plan—projecting €5.03 billion in returns[4]—further cements its commitment to value creation. However, the recent €993 million buyback[4] and hostile takeover bid for Banco Sabadell[2] reveal a balancing act: while management seeks to reward shareholders, it also pursues strategic growth, albeit with mixed success (Banco Sabadell's board rejects the offer as undervaluing its stock[1]).
Risks and Considerations
The primary red flag is BBVA's negative free cash flow. A 12-month operating cash flow of -$39.2 billion[4] suggests either aggressive reinvestment or operational inefficiencies. While the bank's capital position is strong, sustained negative cash flow could strain liquidity if earnings growth falters. Additionally, the P/CF ratio of 52.17[1] implies investors are paying a premium for earnings that lack corresponding cash flow support—a precarious proposition in a cyclical sector.
Conclusion: A Buy, But With Caution
BBVA's valuation metrics, while attractive on paper, must be reconciled with its cash flow challenges. The bank's earnings growth, capital strength, and shareholder-friendly policies—dividends and buybacks—justify optimism. However, the disconnect between earnings and cash flow, coupled with a P/CF ratio far exceeding industry norms, warrants caution. For investors with a medium-term horizon and a tolerance for volatility, BBVA remains a compelling buy, provided its cash flow trajectory improves. For more risk-averse investors, patience may be warranted until free cash flow turns positive or the valuation gap with peers narrows.
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