Banco Sabadell’s €3.4 Billion Dividend and Buyback Plan: A Strategic Bet on Shareholder Value

Banco Sabadell, Spain’s fifth-largest bank by assets, has unveiled an ambitious shareholder remuneration plan totaling €3.4 billion for 2024–2025, marking a historic return of capital to investors. The package combines record dividends and share buybacks, designed to reward shareholders while maintaining a robust capital base. This move underscores the bank’s confidence in its financial strength and strategic direction, particularly after overcoming challenges such as BBVA’s failed hostile takeover bid in 2023.

The Dividend and Buyback Breakdown

The €3.4 billion payout comprises two phases:
- 2024: A total of €2.1 billion, split between €1.1 billion in dividends and €1.002 billion in share buybacks.
- Dividends: A tripling of cash payouts, with an interim dividend of 8 cents per share (paid in October 2024) and a final dividend of 12.44 cents (to be paid in March 2025).
- Buybacks: Exceeding typical allocations, these aim to reduce shares in circulation and boost earnings per share (EPS).

• 2025: At least €1.3 billion, including dividends of €20.44 cents per share and further buybacks contingent on capital generation.

Combined, this equates to €61 cents per share over two years, with the first 13 months (Oct 2024–Mar 2025) delivering 53 cents per share—22% of the bank’s current share price. This proportion is unmatched by any Spanish banking peer.

Financial Performance: The Foundation of the Payout

The remuneration plan is underpinned by record financial results:
- Net Profit: €1.827 billion in 2024, a 37.1% year-on-year increase, driven by strong net interest income (€5.021 billion, +6.3%) and cost discipline (cost-to-income ratio improved to 48.7%).
- Asset Quality: The non-performing loan (NPL) ratio dropped to 2.84%—its lowest since 2009—as provisions fell 21.6% to €714 million.
- TSB Contribution: The UK subsidiary delivered €253 million to group profits in 2024, its highest annual contribution since its acquisition in 2015.

Key metrics like the Return on Tangible Equity (ROTE) rose to 14.9% in 2024, with projections of 14% in 2025 and higher in 2026. The CET1 ratio, a measure of capital strength, remains robust at 13% post-buyback, comfortably above regulatory requirements.

Strategic Outlook and Capital Management

The bank’s strategy emphasizes sustainable capital generation and shareholder value:
- Buybacks as a Growth Catalyst: By reducing shares outstanding, buybacks will amplify EPS growth, a critical metric for investors.
- Dividend Policy Evolution: Starting in 2025, dividends will be paid in three installments (two interim, one final), aligning with recurring earnings.
- Future Targets: A Capital Markets Day in Q2 2025 will outline financial goals through 2027, focusing on maintaining a ROTE above 14% and a mid-teens cost-of-risk reduction.

Executive Perspectives

• Josep Oliu (Chairman): “This payout reflects our standalone strategy’s success. No Spanish peer matches our shareholder return proportion.”
• César González-Bueno (CEO): Highlighted the “exceptional growth trajectory,” citing strong profitability and asset quality.
• Sergio Palavecino (CFO): Stressed reduced provisions and improved risk coverage, enabling record quarterly profits of €532 million in Q4 2024.

Risks and Considerations

While the plan is compelling, risks include:
- Market Volatility: Share buybacks may face headwinds if the stock price rises sharply, reducing the number of shares repurchased.
- Economic Conditions: A slowdown in mortgage lending (up 53% in 2024) or business financing (up 31%) could pressure net interest income.

Conclusion

Banco Sabadell’s €3.4 billion remuneration plan is a bold statement of confidence in its financial health and growth prospects. Backed by record profits, strong capital metrics, and a revitalized TSB division, the bank aims to deliver 22% of its share price in payouts over 13 months, a figure unmatched in its peer group.

The strategic shift to three dividend payments and aggressive buybacks positions the bank to enhance EPS and intrinsic value, while maintaining a CET1 ratio above 13%. With a ROTE of 14.9% and a clear roadmap for future growth, Sabadell is not only rewarding shareholders but also signaling its readiness to capitalize on opportunities in Spain’s resilient banking sector.

Investors should monitor execution against these targets and the bank’s ability to sustain its cost discipline and asset quality. For now, the numbers speak for themselves: Banco Sabadell is writing a new chapter in shareholder value creation.