I have been watching RBS for several months now and had to purchase some shares after it dropped below $6 a shares for a new 52 week low. The 52 week high for the stock is $11.50. The past few years the bank has been on a buying spree and has grown very quickly and now is having some pains with integration into the RBS system. I also think it hurt them as well buy paying too much for their most recent purchase of ABN AMRO.

The stock has dropped over 10% the past few days because of rights offering, write downs at the bank and Warren Buffet not bidding for it's insurance arm that is being sold.

S&P gives RBS a 4 Star (Buy) rating with a 12 month target price of $9 a share. Reuters research gives the stock an Outperform rating. If the stock only reaches $6.60, on the next 12 months that is still a 10% increase. The current yield for the stock is around 7% but this could easily change. Foreign banks are very quick to change dividend payouts depending on company profits or the lack on them. So I could definitely see the dividend being lower next year.

I see this stock as being undervalued compared to it's long term prospects. Once the company blends the different banks together and starts creating operating efficiencies, management comes up with a long term plan for the bank this stock should start to turn around. I believe this company can right itself over the next year and this should be a $8 stock in the next two years. At that time when profits increase you will see the dividend being increased once again.

I now have quite a few banks in my portfolio that also includes Barclays (BCS), Bank of America (BAC), Deutsche Bank (DB), Banco Santander SA (STD), U.S. Bancorp (USB) as well as Royal Bank of Scotland (RBS). But my bank stocks only make up about 9.2% of my entire dividend stock account.

What can I say, I'm a sucker for cheap stocks. Happy hunting.

Disclosure: The Div Guy owns shares of RBS, BCS, BAC, DB, STD, USB at the time of this post.