Investec Group (LSE: INVP) is drawing fresh attention from income-focused investors as analysts forecast its dividend yield rising to 8.2% by end-2028.
The international bank and wealth manager currently offers a dividend yield of 6.3%, which is more than double the FTSE 100’s 3% average.
A Stocks and Shares ISA remains one of the most effective vehicles for building tax-efficient wealth, offering exemption from income and capital gains tax with flexible withdrawal options.
The FTSE 100’s strong performance over the past year has compressed dividend yields across many stocks, as rising share prices push those returns lower.
Investec’s recent promotion to the FTSE 100 index on 22 June prompted a share price rise, yet the stock still appears undervalued relative to its competitors on multiple measures.
Its price-to-earnings ratio of 7.9 sits firmly at the bottom of its peer group, which averages 12 and includes St James’s Place at 10.8, Aberdeen at 11.5, ICG at 11.6, and Man at 14.2.
Investec also trades at a price-to-sales ratio of 2.4 against a peer group average of 2.9, and a price-to-book ratio of 0.9 compared to the sector average of 2.4.
These valuation gaps suggest the market may re-rate Investec’s shares closer to sector norms if profit growth continues as projected.
Analysts expect the bank’s profits to grow at an average of 13.1% per year through to end-2028, with return on equity projected to reach 15% by that point.
Investing the full £20,000 Stocks and Shares ISA allowance in Investec, and reinvesting dividends, would generate approximately £25,284 in dividend income after 10 years, assuming the forecast 8.2% average yield.
Over a 30-year period, that compounding effect would push total dividend income to £212,146, with the entire holding worth approximately £232,146.
That position would generate a yearly income of around £19,036 by the end of the 30-year period, representing a compelling long-term income case.
Risks to the investment thesis include potential tightening of financial sector regulation, which could raise compliance costs and restrict Investec’s banking and wealth management operations.
A prolonged period of lower interest rates also poses a threat, as compressed margins across lending operations could weigh on profitability and limit dividend growth.
Simon Watkins, who owns shares in Aberdeen and Man, notes that his existing sector holdings prevent him from adding Investec, as doing so would unsettle the risk and reward balance of his portfolio.
For investors without that constraint, Investec’s combination of strong projected profit growth, rising dividend forecasts, and clear undervaluation relative to peers makes it a stock worth serious consideration.
