The Motley Fool

The NatWest share price dips, despite £3bn coming over 3 years

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Image source: Getty Images

On Friday morning, NatWest Group (LSE: NWG) released its latest half-year results. Despite a marked improvement in its financials, the NatWest share price weakened before the weekend.

NatWest makes £1.6bn in Q2

Thanks to a booming mortgage market and an economic rebound, NatWest made a pre-tax profit of around £1.6bn in Q2. This was nearly £3bn more than the £1.3bn it lost in Q2 a year ago, when it set aside billions to meet Covid-19-related losses. The state-backed lender reversed £605m of previous credit impairments, which dropped straight into its bottom line. Thanks to government support programmes, bad debts and loan defaults came in far below predictions made 12 months ago. Despite this huge turnaround, the NatWest share price closed down 3.84p (1.9%) at 201.06p, valuing the former RBS at £23.3bn.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

However, the bank’s revenues were flat quarter-on-quarter at £2.66bn in both Q1 and Q2 of this year. Encouragingly, earnings per share — a crucial prop for the NatWest share price — came in at 10.6p, more than double (+107.8%) the 5.1p of the first quarter. Then again, the bank’s net interest margin — a key measure of lending profitability — declined to 1.61% (from 1.64% in this year’s Q1 and 1.67% in H1 2020). Another key metric, return on tangible equity (ROTE), was 15.6% in Q2 this time (versus 7.9% in Q1 and -12.4% in H1 last year).

Dividends could support the NatWest share price

Good news from NatWest is also good for the UK, because HM Government (HMG) owns more than half (55%) of the bank’s stock. Hence, the group’s announcement that it would return more than £3bn to shareholders over the next three years should help to support the NatWest share price.

NatWest has announced an interim dividend of 3p a share, worth almost £350m across 11.6bn shares in issue. Also, it will pay a minimum of £1bn in cash dividends in each of the next three financial years. The bank also unveiled a £750m share buyback. This will reduce the number of shares in circulation, increasing the value of the remaining equity. Further buybacks could also be on the cards — good news for HMG, which plans to sell down its stake. Without these buybacks, government selling pressure might send the NatWest share price southwards.

What next for NWG?

The NatWest share price has been the best performer among UK bank stocks over the past year. It’s up 91%, almost doubling in 12 months. What’s more, the bank’s balance sheet is in rude health. Its common equity tier 1 (CET1) ratio — a key measure of financial strength — stands at 18.2%, far above the regulatory minimum. Also, if the UK economy keeps improving, the bank could have billions of spare capital to boost future shareholder returns (and the NatWest share price).

But three factors could undermine the current direction of the share price. First, the booming UK housing market is starting to cool down, following the return of stamp duty on purchases. Second, if UK economic growth slows or goes into reverse, then the group’s lending margins and profits could stumble again. Third, if more infectious and vaccine-resistant strains of coronavirus take hold, the global economy might crash again — and all bets will be off. I don’t own NatWest stock today, but after these solid results, I might well be tempted to. However, I’d prefer to see how H2 unwinds before pressing the Buy button!

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.