Last chance to buy NatWest shares for a 4.5% dividend in April

NatWest shares are set to pay a dividend worth 4.5% of the current share price to investors. But is that a good enough reason to consider buying the stock?

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If I invest £5,000 in NatWest (LSE:NWG) shares today (March 13), I can expect a £225 dividend in April. That’s a 4.5% return on my investment within a month.

Today is the last day for buying the stock in order to receive the dividend. So should I be loading up on NatWest shares before 4:30pm to secure a big payout?

Dividends

By most metrics, NatWest shares look cheap at the moment. And the stock comes with an eye-catching 6.7% dividend yield as a result. 

Around two-thirds of the dividend for 2023 is set to be paid to investors in April. And anyone who owns the stock when the market opens tomorrow will be eligible to receive the payment.

Investors who buy the stock tomorrow won’t be, though. So today is the last chance to buy NatWest shares to secure the majority of last year’s distribution.

That makes the equation look easy – buy the stock today and get 4.5% back in cash next month, or buy it later and don’t. But things are rarely this straightforward when it comes to investing.

Share price

Predicting what a stock will do over a short time frame is always risky. But some expectations are more reasonable than others. 

When NatWest shares begin trading tomorrow, they won’t come with the 11.5p dividend investors who buy the stock today will receive. That will make them worth less than they are right now. 

Given this, it seems investors ought to pay less for the stock than they are today. So the NatWest share price should fall tomorrow – by roughly 11.5p.

Buying the stock today with a view to selling it tomorrow and making a profit from the dividend probably isn’t a great idea. But how does the business look from a longer-term perspective?

Margins, profits, and dividends

Regardless of timing, NatWest’s dividend makes it look attractive from a passive income perspective. And at a price-to-book (P/B) ratio of 0.6, the stock looks cheap at today’s prices.

Another positive is the fact that the UK government looks set to offload its stake in the bank this summer. That should give the company more flexibility in its operations.

The prospect of lower interest rates makes betting on NatWest maintaining its current profitability levels risky. But analysts are optimistic about the firm’s earnings going forward.

NatWest is expected to bring in £11bn in net income over the next three years. If it can do this, then the high dividend looks sustainable to me and I think there’s a margin of safety at these levels.

Should I rush to buy NatWest shares?

From an investment perspective, I’m looking at NatWest shares beyond the upcoming dividend. I’m not convinced there’s much of a short-term opportunity there.

Over the longer term, though, the company’s prospects look more positive. I’m considering buying shares in a number of UK banks at the moment and NatWest is on the list I’m looking at.

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.

Stephen Wright 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.

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