The NatWest (LSE: NWG) share price is on fire. Or at least it was. Shares in the FTSE 100 bank pretty much doubled last year, as confidence returned to the sector after more than 15 years of post-financial crisis uncertainty.
This year’s been more choppy, but with a 54% gain over 12 months, it’s still one of the index’s stronger performers.
Like many investors, I’m cautious of chasing past returns. The risk of getting swept up in the excitement only for the gains to fizzle is real. As a result, I’ve watched NatWest power ahead while sitting on the sidelines, and that always stings.
A stellar year of growth
My usual approach is to back underperforming stocks and wait patiently for a turnaround. Sometimes it works, sometimes it doesn’t.
Watching NatWest’s steady climb, and its resilience in the face of recent market jitters, has me rethinking that strategy.
Even over the past three months, as global stocks wobbled under tariff tensions, NatWest has edged up 10%.
Full-year 2024 results, published in February, were solid. Profit dipped slightly to £3.43bn, down from £3.51bn. This was partly due to a modest dip in income and rising costs due to restructuring and continued tech investment. That’s not necessarily a bad thing though. Spending on digital capabilities makes sense.
Margins may be squeezed
Net interest income actually rose 2% to £8.2bn, thanks to a mix of lending growth and higher rates.
The balance sheet looked robust too. Loans to customers jumped £13.5bn to £332bn, helped by the Metro Bank mortgage portfolio acquisition and stronger retail activity. Deposits also rose, by £4.5bn, as savers shifted towards interest-bearing accounts.
Analysts reckon the Bank of England could cut interest rates again on 8 May, with three cuts possible this year. That could trim base rate from 4.5% to around 3.75%.
Lower rates would compress net interest margins, the gap between what banks pay savers and charge borrowers. But they may also perk up mortgage lending and reduce the risk of bad loans. Swings and roundabouts.
Dividend income and growth
What happens next is anyone’s guess. But the 17 analysts tracking NatWest reckon the shares could rise to a median target of 534p over the next year. That’s an increase of around 12% from today.
Add in the juicy forecast yield of 5.96% for 2025, and the total return could stretch towards 18%. That’s not last year’s rocket ship, but it’s none too shabby either. Nobody can expect a big FTSE bank to double twice in two years.
Of course, these forecasts came before 2 April’s so-called Liberation Day, when Donald Trump’s tariffs threw markets into a frenzy.
This makes them even less reliable than usual. But an impressive 11 out of 18 analysts named NatWest a Strong Buy, another two said Buy and five said Hold. Not a single one said Sell.
NatWest still looks attractive, offering both income and growth potential. If interest rates fall, that near-6% forecast yield will look even more attractive, possibly drawing in new investors.
I think NatWest is still well worth considering today, but I wouldn’t expect another fireworks display.
