NatWest (LSE:NWG) is set to distribute 6p per share to its shareholders on 13 September. In order to qualify though, investors need to own the stock when the market opens on 8 August.
Anyone who buys the stock before then stands to get 1.8% of their investment back next month. So does that make it a no-brainer to buy the stock now, rather than waiting until later?
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Ex-dividend dates
To receive a dividend from a company, investors need to own the stock at the start of the ex-dividend date. Anyone who buys it on the day or after doesn’t get the payment.
This makes the equation look straightforward – buy the stock before Thursday to get 6p per share in September, or buy it after and don’t. But things aren’t quite as simple as that.
Aside from the dividend, there’s no difference between NatWest shares before the ex-dividend date and after. They’re still an equal ownership stake in the same company.
So why would anyone thinking about buying the stock even consider waiting until tomorrow? Maybe they shouldn’t, but there are at least a couple of considerations worth paying attention to.
Share prices and dividend tax
The only difference between NatWest shares on Wednesday and NatWest shares on Thursday is one comes with a dividend. Put another way, the stock is worth 6p less on its ex-dividend date.
Since this is entirely foreseeable, I think investors ought to expect the market to factor this in. In other words, the price should be 6p lower on Thursday than it would have been otherwise.
There’s no guarantee this will happen, but I wouldn’t be willing to bet on it. And dividend tax might be another issue for those who own the stock outside a Stocks and Shares ISA.
Paying taxes on distributions might result in someone getting less than 6p per share. In that case, an investor might do better buying the stock at a discount than by taking the dividend in cash.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Is the stock a buy?
Ultimately, I don’t think the biggest question for investors is whether to buy NatWest shares before or after the ex-dividend date. It’s whether to consider buying the stock at all.
The NatWest share price is up 36%, over the last year, while the FTSE 100 has managed a 6.25% gain. But despite this, the stock still looks like good value to me.
At a price-to-book (P/B) ratio of 0.71, it’s also cheaper than the index, which trades at a P/B ratio of 1.8. And at 12%, the return on equity generated by the bank is higher than the FTSE 100 as a whole.
The company’s ability to keep earning this level of return if interest rates fall might be questionable. But there’s a clear reason why investors might consider buying the stock at today’s prices.
Today or tomorrow?
There’s a possible tax advantage to buying the stock when it comes without a dividend, but there’s no guarantee of this.
A volatile stock market isn’t taking any prisoners at the moment. So if I see something I like the look of, I’m looking to buy it before the opportunity goes away.
