The NatWest (LSE: NWG) share price is cooking. It’s up 300% over five years, and 70% over 12 months.
This kind of growth shouldn’t happen to a big FTSE 100 bank. And for more than a dozen years after the financial crisis, it didn’t.
Piecing the bank together from fragments of Royal Bank of Scotland was the work of more than a decade. Lest we forget, the RBS share price began 2007 above 5,000p. By January 2009, it had crashed to 200p, and it bobbed around that level all the way to the start of 2024, when it turned up the heat.
Surging returns
Full-year 2023 results, published in February last year, showed a 20% jump in operating profits to £6.18bn, with £3.6bn returned to shareholders via dividends and share buybacks. Investors loved it. The NatWest share price doubled in 2024.
At that point, I did what I usually do – decided it had gone too far, too fast, and wasn’t worth buying. For years, that’s been my response to stocks with momentum behind them. But I’ve missed out on plenty of growth as a result, and now I’m rethinking that strategy. Maybe it’s time I stopped worrying and learned to love momentum.
So what would have happened if an investor had bought NatWest at the start of 2025?
The shares opened the year around 402p. As I write, they’re hovering around 510p, up 27% since January, after 2024 operating profits edged up slightly to £6.2bn. That would have turned a £10,000 investment into £12,700.
Added dividend bonus
But that’s not all. On 28 April, NatWest paid a final dividend of 15.5p per share. That £10k would have bought around 2,485 shares after charges, generating a payout of roughly £385. Add that to the capital gain, and the total return climbs to £13,085.
That’s a brilliant result, although I should say that nobody at The Motley Fool would suggest buying a stock just to chase a quick gain. We believe the real benefits come over the long term – when businesses build profits across the cycle and deliver steady dividends that can be reinvested.
So how does NatWest shape up on that front?
Still looks reasonable
The shares still look surprisingly good value, despite their strong recent run, with a price-to-earnings ratio of 9.8. The price-to-book ratio of 1.08 suggests they’re close to fair value – not screamingly cheap, but still decent.
On 2 May, NatWest beat expectations with a 36% jump in Q1 pre-tax profits to £1.8bn, up from £1.3bn the year before. That was driven by a surge in mortgage demand ahead of the 31 March end of the stamp duty holiday. However, the housing market has cooled since, and that’s likely to show up in Q2.
The bank’s taken some impairment charges already. If interest rates stay higher for longer, it could take more.
In May, NatWest offer £11bn to buy Santander UK’s retail banking arm. The offer was rejected as too low. We don’t know what NatWest is planning, but I suppose there’s a risk it could overpay, while bolting on acquisitions isn’t always straightforward.
After a strong run, it’s not hard to imagine NatWest shares pausing for breath. But with profits rising and that valuation still reasonable, I still think it’s well worth considering with a long-term view.
