Loss-making lender Royal Bank of Scotland (RBS) can start paying dividends again after ending a scheme that gave the government priority over shareholder returns.

The Dividend Access Scheme (DAS) was established when the bank was bailed-out in 2008 and has now been closed after £1.2 billion was paid to the treasury. The scheme forbade RBS from paying dividends to any shareholder other than the government.

The 1.5% fall in the bank’s shares to 231.9p shows that the market is cold on the idea of a dividend reintroduction. Given the continued weak performance of the business there are higher priorities for its cash.

Web - RBS - 22 March 2016

The retail, commercial, private and investment bank has lost money for eight consecutive years after posting a £2.7 billion pre-tax loss for 2015.

RBS may have to find capital to pay potential fines and further compensation payments linked to mis-selling scandals.

Management have not confirmed it will be recommending a dividend this year, but Investec analyst Ian Gordon has pencilled in a 5p a share payment for 2016, rising to 15p in 2017. This puts the stock on prospective 2.1% and 6.4% yields, respectively.

RBC Capital Market’s Claire Kane anticipates a 10p a share dividend in 2016, or a 4.3% yield, doubling to 20p a share by 2018, or 8.6%.


RBS hasn’t paid a dividend since the 33.2p a share it returned to shareholders in 2007.

Rival bailed-out lender Lloyds Banking (LLOY) reintroduced shareholder payments in 2014 and its status as a progressive dividend stock was confirmed in 2015 with the 2.75p a share payment being 266% higher than the 0.75p dividend paid a year earlier.

The two banks are in different stages of the recovery process. While RBS continues to report losses Lloyds made a £1.6 billion pre-tax profit in 2015 and is close to fully exiting state ownership.

RBS has reduced the tax-payers’ stake to around 73% from the 84% it bought in 2008.

Issue Date: 22 Mar 2016