NatWest (LSE:NWG) shares are up 296% over five years. That means £10,000 invested in during the barmy spring of 2020 would now be worth over £40,000 when dividends are taken into account. That’s a phenomenal increase. And perhaps surprisingly, a lot of that growth has come over the past year, not just in the period following the pandemic.
Earnings rise, government stake falls
NatWest has extended its impressive earnings streak, posting a first-quarter profit that soared 36% year-on-year to £1.8bn, comfortably beating analyst forecasts. This performance was fuelled by higher margins on deposits and a healthy uptick in mortgage lending.
The results broadly demonstrated the bank’s ability to thrive even as market conditions remain uncertain. CEO Paul Thwaite’s upbeat outlook, with guidance now at the upper end for 2025, underlines management’s confidence in sustaining this momentum.
Perhaps even more significant for investors is the UK government’s continued sell-down of its NatWest stake, which has now dipped below 2%. That’s a remarkable turnaround from the 84% holding at the height of the 2008 financial crisis.
With the government no longer a major shareholder, NatWest is now truly back in private hands for the first time in over 15 years.
Sadly, the treasury, in which we as citizens are all essentially shareholders, hasn’t recouped its original investment. The UK government paid around £45.5bn to bail out NatWest (then Royal Bank of Scotland) during the 2008 financial crisis, acquiring a peak ownership stake of 84%. The average price paid per share was about 499p. Through share sales, the government has brought in around £23bn.
However, for shareholders, this marks a new era. The overhang of government sales is nearly gone, removing a key source of uncertainty. Combined with NatWest’s strong operating performance, this could pave the way for improved investor sentiment. The story of NatWest’s recovery continues. It’s looking increasingly compelling.
Valuation’s attractive, but…
NatWest’s valuation also looks compelling. The bank boasts strong earnings momentum and clear commitment to dividend growth through 2027. Earnings per share are forecast to climb steadily from 53.1p in 2024 to 66.3p by 2027.
The shares currently trade at a forward price-to-earnings (P/E) of around 8 times, which is undemanding compared to the global sector average. This falls to 7.3 times by 2027. The price-to-book ratio, set to stay below 1 times over the next few years, suggests the stock’s still attractively valued relative to its assets.
Meanwhile, the dividend per share is expected to rise each year, reaching 34.5p in 2027. With management targeting a payout ratio above 50% of earnings, shareholders could enjoy a yield comfortably above 7% in 2027. That’s well ahead of the FTSE 100 average.
This combination of low valuation multiples, rising profits, and a generous dividend policy should underpin NatWest’s share price. For income seekers and value investors alike, the outlook for NatWest looks increasingly attractive.
However, I’d note that both Lloyds and Standard Chartered look cheaper in 2027. So while I’m still optimistic on the stock, there could be better value in the UK. I’m keeping my powder dry.
