The Nordea share could be an excellent high-yield instrument
The theme of higher interest rates favours value stocks, including banks. One could find Nordea’s stock interesting among the Nordic banks, with a yield of almost 7%.
The world's stock markets have had a bad week after the central banks' (Fed and ECB) bitter announcement that the fight against inflation will continue with a higher interest rate path for longer than the stock markets had expected. The ECB's Lagarde message was overshadowed by Powell (as usual) but was more hawkish in its tone than Powell’s. The inflation rate and hence challenge (where the energy component is essential) is higher in Europe than in the US, even though interest rates are still lower in Europe.
Significant stock indices performance in one week, one month and this year
Most of the 60-70 basis point decline in 10-year interest rates from
mid-October to early December have been reversed. The interest rate market is
discounting a recession as the 2-year rate is about 50 to 60 basis points
higher than the 10-year rate in both the United States and Sweden.
Rising interest rates mean higher return requirements and, thus,
declining stock prices. This is particularly evident for the Nasdaq, the worst
performer of the indices in 2022 we have included in the graph above.
US 10-year Treasury Yield (in %), a five-year graph
As central banks maintain a hawkish tone on policy rates, investors will
look for stable stocks with good yields, we argue. The Nordic banks are in a
good position, given that the market is an oligopoly. The recent rise in
interest rates has given them opportunities to increase lending margins. This
is particularly true for home loans.
We find Nordea to be the most attractive of the Nordic bank shares.
Unlike Handelsbanken and Swedbank, the bank is not biased towards residential
lending (which could be riskier in today's market). Nordea also has broad
Nordic exposure in its operations, giving a stable earnings capacity.
Nordea’s dividend policy stipulates that 60-70% of net earnings should
be distributed to the shareholders. Nordea declared a dividend of EUR 0.69 per
share in its FY 2021 report. As of 30 September 2022, Nordea's earnings per
share stood at €1.03/share for twelve months. This gives a dividend of around
67% of current earnings capacity, within the bank's policy.
Nordea (in SEK), a daily one-year graph
Bull & Bear-Certificates
The Nordea stock is trading upward and has little to go to the previous price peak, around 115 SEK. Despite the rise in the share price, the share currently offers a high yield of 6.9%, given the current dividend.
Nordea (in SEK), a weekly five-year share price chart
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
Risks
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