Is BBVA Stock Still a Buy After a 75% Rally and a Dividend Hike?

The question of whether Banco Bilbao 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 9.09BBVA Stock Price History & Chart Since 1988^[1] appear attractively low compared to the U.S. banking sector's average P/E of 14.8xFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[4]. Similarly, its price-to-book (P/B) ratio of 1.55BBVA Stock Price History & Chart Since 1988^[1] lags far behind the industry's 4.0x benchmarkFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[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 52.17BBVA Stock Price History & Chart Since 1988^[1] dwarfs the sector's average of 4.02Financial Institutions Price to Free Cash Flow Ratio 2010-2025^[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 billionFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[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 increaseBBVA Earnings-2Q25^[2]. Its return on tangible equity (ROTE) of 22% for 2025–2028BBVA Earnings-2Q25^[2] and a CET1 capital ratio of 13.09%BBVA Q1 2025 Earnings Call^[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 BBVA maintained a 45.83% payout ratio in 2023BBVA Earnings-2Q25^[2], it has since dropped to 37.41% in 2025 estimatesBBVA Earnings-2Q25^[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%BBVA Dividend Yield History^[6], with the 2025 interim dividend expected to rise 81% year-over-year to €0.29 per shareFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[4]. Meanwhile, aggressive share repurchases have amplified returns. Since 2022, BBVA has repurchased 14% of its shares for over €5.3 billionFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[4], including a €1 billion extraordinary buyback in 2023BBVA Completes Extraordinary €1 Billion Share Buyback Program^[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 2025BBVA Completes Extraordinary €1 Billion Share Buyback Program^[5].

The bank's 2025 shareholder payout plan—projecting €5.03 billion in returnsFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[4]—further cements its commitment to value creation. However, the recent €993 million buybackFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[4] and hostile takeover bid for Banco SabadellBBVA Earnings-2Q25^[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 stockBBVA Stock Price History & Chart Since 1988^[1]).

Risks and Considerations

The primary red flag is BBVA's negative free cash flow. A 12-month operating cash flow of -$39.2 billionFinancial Institutions Price to Free Cash Flow Ratio 2010-2025^[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 52.17BBVA Stock Price History & Chart Since 1988^[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.