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If someone had made a £10,000 investment in Santander (LSE:BNC) shares a year ago, their holding would now be worth around £16,500, reflecting a 65% gain over the past 12 months. They’d also have received around £430 in dividends.
This surge has outpaced the broader index and reflects a combination of robust earnings growth, strategic restructuring, and renewed investor confidence.
TSB takeover
Santander’s current momentum could be traced to its recent agreement to acquire TSB from Sabadell for £2.65bn. This deal, expected to complete in early 2026 pending shareholder and regulatory approval, will make Santander the third-largest bank in the UK by personal current account balances. It will also add five million TSB customers to Santander UK’s existing 14 million. The acquisition is valued at five times TSB’s projected 2026 earnings and 1.45 times tangible book value as of March.
Santander expects the TSB deal to generate a return on invested capital of over 20%, with cost synergies of at least £400m. That’s equivalent to 13% of the combined cost base. The bank projects that the transaction will be earnings accretive from the first year, contributing to a 4% increase in group earnings per share by 2028. Importantly, the acquisition won’t disrupt Santander’s distribution policy or its ambitious targets for buybacks and capital returns.
Trading in line
Santander’s valuation is attractive on paper but broadly trades in line with other banking peers. The forward price-to-earnings (P/E) ratio’s projected at 8.5 times for 2025, 7.8 times for 2026, and 6.9 times for 2027. These multiples are well below the industry average, suggesting the shares are still attractively priced relative to expected earnings growth.
This is happening because the earnings forecasts show a clear acceleration. Analysts expect EPS to rise from €0.77 in 2024 to €0.84 in 2025, €0.92 in 2026, and €1.04 in 2027. This represents annual growth rates of 9.9% for 2025, 9.5% for 2026, and 12.7% for 2027. The group’s restructuring initiatives have already delivered four consecutive quarters of record profits. Net profit was up 19% year-on-year in the first quarter of 2025.
Yield lower but room for growth
It remains a reliable dividend payer. The dividend yield forecast for 2025 is 3.2%, rising to 3.3% in 2026, and 3.8% in 2027. Dividend cover’s very strong, with payout ratios around 26%, indicating that distributions are well supported by earnings. While this yield may be a little lower than some peers, there’s room for growth, and the company’s aiming to conduct €10bn in share buybacks for 2025 and 2026 earnings.
The bottom line
The shares have delivered exceptional returns over the past year, driven by accelerating earnings. This has been complemented by a disciplined approach to capital allocation, and what may prove to be a transformative UK acquisition.
The stock appears to trade in line with peers on forward earnings. However, the acquisition may prove game-changing. It also provides exposure to growth-oriented markets such as Brazil and Mexico, which we don’t typically find from UK-listed banking stocks. Although it’s worth noting that developing economy exposure is also a risk as well as a benefit.
Personally, I think it’s worthy of consideration as an investment. I’ll be taking a closer look although I’m already well stocked up on banks.
