It’s always nice to welcome a new dividend stock to the FTSE 100 – especially one like this. The stock in question is Investec (LSE: INVP) and it’s been smashing it lately.
If you’ve missed it, that’s because it was only promoted from the FTSE 250 a month ago on 22 June. But it’s instantly become one of the FTSE 100’s most prominent income stocks, with a trailing yield of 6.07%.
Investec has been here before. It entered the FTSE 100 in March 2010 but exited in December the following year. Let’s hope its latest stay proves more enduring.
Why is Investec doing so well?
The Investec share price is up a stunning 147% in the last five years, with dividends on top. That follows its successful shift from being a specialist lender to a full service bank and wealth manager. It’s been winning new clients and the fund management arm has enjoyed strong net inflows. Profits typically drive share price performance, and that’s the case here.
- 2026 – £951.0m
- 2025 – £963.5m
- 2024 – £889.6m
- 2023 – £818.7m
- 2022 – £687.4m
2025 was a good year, as higher global interest rates allowed it to boost net interest margins, the difference between what banks pay savers and charge borrowers. The 2026 slowdown reflects last year’s interest rate cuts. Investec’s share price growth has slowed too. The stock is up a more modest 15% in the last year.
When shares fly like this one has, the yield typically falls due to simple mathematics, but there’s still juicy income to be had. In 2022, the board hiked the dividend by 92% to 25p per share, although that was partly to make up for a 55% cut to 11p in 2020 during the pandemic. The 2026 increase was a solid 5.5% to 38.5p, although it does mark a bit of slowdown.
Investec further rewarded investors with a £110m share buyback, launched in August last year and concluded in March.
Can this stock keep going?
Investec still looks good value with a price-to-earnings ratio of 7.47%, but let’s not get too carried away. All the big banks have done well lately, and for the same reason: higher net interest margins. When interest rates eventually fall, margins will be squeezed. Although as the Iran war intensifies, we’re not there yet.
The global economy is on tenterhooks as investors fret over the oil price and potential AI bubble. All the banks would be vulnerable if we got a wider stock market crash.
Here’s something else to consider. Despite its FTSE 100 berth, Investec’s roots are in South Africa, and the country still contributes just over half its profits. Its South African operations enjoy a higher return on equity, but the split leaves its results vulnerable to currency swings. Any dip in the Rand would hit earnings, which are reported in sterling.
I still think Investec is worth considering for income-focused investors. But since I personally hold HSBC, Lloyds and NatWest, I already have outsized exposure to FTSE 100 banks. Investors should check theirs before they rush to buy another bank, even one as exciting as this.
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Harvey Jones owns shares in HSBC, Lloyds and NatWest.
This story originally appeared on Motley Fool
