NatWest or Lloyds share price: which will climb higher in 2024?

The Lloyds share price remains top of mind for many FTSE 100 investors. But NatWest could come roaring back to challenge this status quo in 2024.

| More on:

Image source: NatWest Group plc

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I look at the Lloyds (LSE:LLOY) share price I can see why it constantly tops the list of the UK’s most-traded shares.

Shareholders have been hurt time and again by the black horse bank

Lloyds shares are down more than 20% in the last 12 months and they’ve never really recovered from the 2008 stock market crash

Dividends have softened the blow somewhat. Analysts think Lloyds will pay 2.76p per share dividends this year and 3.24p per share in 2025. 

At a share price around 40p, that means hefty yields between 6.9% and 8.1%. But could rival NatWest (LSE:NWG) be a better buy?

Go west

As of 7 February 2024, I could buy NatWest shares for around 220p. If I’d picked the perfect recent low, in September 2020, I could have doubled my money. 

But it’s basically impossible for me to time the market like this.

However, when NatWest puts out its full-year results in February, I’m expecting a slight improvement. I see profits jumping from £3.5bn to £4bn. 

The opportunity

The government bailed out NatWest amid the financial crisis in 2008 with £45.5bn of taxpayer’s money. 

Chancellor Jeremy Hunt now wants to sell the government’s 39% stake in the bank. And we heard in early February that Hunt has drafted in M&C Saatchi to help make this happen. 

So I’d expect to see a fairly major advertising campaign urging the public to buy NatWest shares. I’m expecting to see this share sale as early as June 2024.  

But would I put my own money down on this opportunity?

Big buybacks

In an effort to push up share prices, UK banks are embarking on a campaign of share buybacks. 

Lloyds and HSBC are tipped “to lead the sector”. Lloyds in particular is set to spend £2bn more on buying back its own shares. This could prop up the ailing share price.

But I found one statistic more interesting from recent reporting. NatWest isn’t on the list of those banks planning to reduce its outstanding shares. 

But its valuation is the most compelling of all, analysts say.

Today the shares are priced at five times its 2025 forecast earnings. That compares favourably with 6.2 times forecast earnings, which is the sector average in Europe. 

And share buybacks — like those ongoing at Lloyds — seem a short-term solution. They aren’t really additive to long-term growth. 

Diving deeper

2024 may be another tough year for UK-listed banks. Analysts expect a key rate of profitability called ‘net interest margin’ to be weak in this financial quarter. 

This is the difference between the interest banks charge on lending, and the amount they have to pay out on borrowing. 

Inflation remains a stubborn problem. This may stop the Bank of England from cutting interest rates. And a weaker outlook for future growth means one thing. Investors may sell out of FTSE 100 stocks to seek better returns elsewhere.

Dividends better?

However, I can see NatWest plans to hike its dividend from 13.8p to 16.9p per share this year. That would give it a 7.8% yield. That’s even better than what’s on offer at Lloyds.

I will be watching NatWest’s earnings report on 16 February 2024. If it’s more profitable than its rival, this could be a great buy for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »