Itaú Unibanco’s strategy of trying to be everything to every consumer and business isn’t unusual in the world of banking. The major US banks have adopted a similar strategy over time, providing core banking services like deposits and loans, but also insurance products, equity investing, and a host of other products to help attract customers.
However, what sets Itaú Unibanco apart is its exposure to emerging economies rather than established ones in Europe or the US.
Indeed, Brazil’s economy has struggled for many years, and many of the other countries Itaú Unibanco operates in similar, if not worse, situations.
This is a primary concern for us regarding the company’s ability to grow because a bank’s business model requires broad economic growth for its own expansion. Without this growth, Itaú Unibanco will have a difficult time producing profit expansion.
On February 6th, 2025, Itaú Unibanco reported its fourth-quarter and full-year results for 2024. The company’s recurring managerial result reached R$10.9 billion, up 2.0% from the previous quarter, with a 22.1% return on equity.
The loan portfolio grew 6.3% overall and 5.8% in Brazil, driven by mortgage (+5.6%), vehicle financing (+1.8%), and credit card loans (+6.8%). Small and medium-sized business loans rose 8.1% due to foreign exchange effects and government-backed financing. Corporate lending increased 6.8%.
Higher lending and an improved liabilities margin led to a 3.7% rise in the financial margin with clients, while credit costs rose 4.8%. Nonperforming loans over 90 days (NPL 90) improved to 2.4%, with similar gains in short-term delinquency rates.
For 2024, the recurring managerial result grew 16.2% to R$41.4 billion, with a return on equity of 22.2%. Pre-tax income rose 19.7% to R$60.5 billion, while the loan portfolio expanded 15.5% overall and 14.3% in Brazil. Growth in lending, higher margins, and structured operations drove a 7.1% increase in financial margins with clients. The cost of credit fell 6.6%, saving R$2.4 billion. Commissions and fees grew 7.2%, while the insurance and pension segment rose 13.8%.
Non-interest expenses increased 6.8%, but core costs rose just 4.4%, below the 4.8% inflation rate. The efficiency ratio hit record lows at 39.5% overall and 37.7% in Brazil. Shareholder returns included R$18.0 billion in distributions—R$15.0 billion in dividends and R$3.0 billion in share buybacks—bringing the 2024 net payout ratio to 69.4%.
Source: Investor Presentation
Dividend Analysis
Itaú Unibanco takes a conservative approach to dividend payments. The bank pays dividends to shareholders based on its projected earnings and losses, with the goal of being able to continue to pay the dividend under various economic conditions.
On the plus side, the relatively low yield affords the bank better dividend coverage as the payout ratio is in the teens. We, therefore, do not see any risk of a negative change in the dividend policy today, but we are also cautious about future growth given the uncertain outlook for Brazil’s economy.
Source: Investor Presentation
Thus, we do not believe income investors should be interested in Itaú Unibanco stock due to its fairly low yield and the elevated geopolitical and macroeconomic risk factors.
Final Thoughts
We see a difficult road ahead for Itaú Unibanco. With low projected earnings growth under normalized conditions and a diminutive dividend yield, we don’t view this stock as attractive.
Furthermore, buying international stocks carries multiple unique risk factors, including geopolitical and currency risks. Itaú stock provides geographic diversification for investors particularly interested in investing outside the United States.
However, the risks seem to outweigh the potential rewards for this stock. Given all of the above factors, we recommend investors avoid Itaú Unibanco, despite its monthly dividends.
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