The U.S. stock market stumbled near all-time highs last week, prompting investors to review the landscape. With conflicts brewing overseas and economic data beginning to weaken, it might be time to once again focus on income over capital appreciation.
One area with both strong growth prospects and dividends is the international banking sector, and today we’ll look at three international bank stocks that could help preserve capital if market conditions break down.
The End of U.S. Exceptionalism?
Since the end of the Great Financial Crisis, U.S. investors have gained an edge by simply having a strong domestic bias. Whether it was the Flash Crash in 2011, the 2018 bear market, or the COVID-19 crash in 2020, investors have been rewarded by staying the course and buying the dip. Retail dip buyers were rewarded earlier this year when President Trump announced, and then quickly backed off his reciprocal tariff plan.
However, the notion that there is no alternative to U.S. stocks has taken a few gut punches over the last few years. Since the 2022 bear market ended, U.S. stocks have been on a tear, but European stocks have performed even better. And since the start of 2025, the S&P 500 has been one of the worst-performing indices in the developed world.
What’s causing this shift in investment attitudes? It may be premature to announce the end of American exceptionalism, but here are three commonly cited reasons investors are expanding their market horizon.
- Differing Macro Environments: Last week, the Federal Reserve left the overnight rate unchanged, and the market is predicting only two rate cuts for the rest of the year (likely in September and December). The Fed cited rising inflation expectations and a resilient labor market as reasons for maintaining its target range of 4.25% to 4.50%. But while the Fed is standing pat, the European Central Bank is well into its cutting cycle and dropped its benchmark rate to 2.25% in April. Sticky inflation and declining GDP could stifle growth in the U.S. just as stimulative monetary policy sweeps through Europe, Asia, and other North American countries.
- The USD Is No Longer a Safe Haven: Something unusual occurred when markets plummeted following the Liberation Day tariff announcement. Gold prices and bond yields spiked as the flight to safety began, but the dollar didn’t follow suit. USD depreciating at a time of uncertainty was eye-opening, implying that perhaps the dollar isn’t the safe-haven asset it once was. A depreciating dollar is also bullish for international banks with foreign currency revenue, as it acts as a multiplier on earnings not denominated in USD.
- Attractive Valuations: Now that international fiscal and monetary tailwinds are in place, investors may take note of international valuations compared to those of U.S. peers. The S&P 500 currently trades around 23 times 2025 earnings, higher than the mid-teen rates seen in Europe, Canada, and the U.K. If the U.S. macro environment deteriorates, investors will have little reason to pay up for American equities.
Three International Banks That Can Benefit From Changing Global Economic Attitudes
When the tide shifts, good investors adjust their sails. International stocks have outperformed their U.S. counterparts for several years, and foreign banks are well-positioned to reap the benefits of a depreciating dollar. These three bank stocks outside the U.S. offer growth potential and stable dividends.
Royal Bank of Canada: Bundling Growth and Stability
- Dividend Yield: 3.23%
- Dividend Payout Ratio: 45.67%
Royal Bank of Canada (NYSE: RY) missed top and bottom line projections in Q1 2025, but reported EPS growth of 42% year-over-year (YOY) and record net income of $5.1 billion.
One driver of the bank’s growth was the acquisition of HSBC Bank Canada, which netted the firm an additional $214 million in the quarter.
Canada’s rate environment and GDP projections could increase lending demand, and RY is trading near all-time highs as a result.
The dividend is also sturdy, as RY has raised payouts for 15 straight years.
Banco Santander: Understanding the Assignment in the Digital Age
- Dividend Yield: 2.22%
- Dividend Payout Ratio: 20.69%
Banco Santander S.A. (NYSE: SAN) also reported record profits in Q1 2025, growing income 19% YOY and EPS 26% YOY. While the bank has an emerging presence in the U.S., its primary markets are Spain, the U.K., Portugal, and Poland- four nations with strong growth prospects and moderating inflation.
Santander’s net margins are approaching an eye-popping 17%, but the stock still trades at just 9.7 times forward earnings and 1.8 times sales. The bank is also embracing the digital age, seeking to integrate the brick-and-mortar model with the new wave of online-only banks.
Digital sales increased by 23% YOY in the most recent quarter, so the initiatives are already paying dividends. Additionally, the 20.69% dividend payout ratio (DPR) on the actual dividend suggests ample room for future payout increases.
NatWest Group: Initiatives for Market Share Gains in the U.K.
- Dividend Yield: 5.63%
- Dividend Payout Ratio: 51.68%
NatWest Group plc (NYSE: NWG) is also making strategic acquisitions to expand its market share.
The U.K.-based bank recently acquired Sainsbury’s Bank, which adds over one million new customers and 2.7 billion euros (approximately $3.1 million) in new savings.
NatWest also has an agreement with OpenAI to remake its customer service modules in an attempt to improve efficiency and reduce costs.
The bank’s Q1 2025 earnings release was a significant beat on both top and bottom lines, with income increasing by nearly 16% YOY and an impressive 18.5% return on tangible equity (RoTE).
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