Over the past five years, the FTSE 100’s risen 40%. But behind this figure lies some very different performances. For example, the share price of Rolls-Royce Holdings has soared over 600% since June 2020. By contrast, Vodafone’s has tumbled 42%.
But anyone clever (or luck) enough to invest in the five best performers over the period have done very well. A sum of £10,000 spread evenly across the top five would now be worth an amazing £38,800. And this ignores any dividends that were paid during the period.
| Stock | 5-year change in share price (%) |
|---|---|
| Rolls-Royce Holdings | +681 |
| 3i Group | +397 |
| NatWest Group | +292 |
| Centrica | +290 |
| BAE Systems | +281 |
| Average | +388 |
Of course, it’s easy with the benefit of hindsight to pick winners. The bottom five would have turned £10,000 into £6,000.
Spreading risk
However, looking at the list, I think they would have made a well-balanced portfolio.
An investment company, a bank and energy group operate in very different sectors of the economy. And even though there’s a degree of overlap between Rolls-Royce and BAE Systems – they both have exposure to the defence industry – I think they’re sufficiently different to justify inclusion in a handful of diversified stocks.
It therefore wouldn’t surprise me if – five years ago – a number of savvy investors took positions in all of them.
Unfortunately, I didn’t. But investing is full of ‘ifs’ and ‘maybes’.
Averting disaster
One body that did own NatWest Group (LSE:NWG) stock during this period was the UK government. But despite the bank’s impressive recent share price performance, the taxpayer made a loss on its investment.
In May, the government sold the last of its shares having first taken a stake during the 2008 banking crisis. Overall, the government spent £45.5bn to stabilise the Royal Bank of Scotland (now NatWest) but only received £35bn from subsequent share sales and dividends. The Treasury claims “the alternative would have been a collapse with far greater economic and social consequences”.
This demonstrates how important it is for banks to be in good financial shape.
Financially robust
And NatWest appears to be doing well. The consensus forecast is for earnings per share over the next three years of 57.3p (2025), 64.7p (2026) and 71.4p (2027). Based on a current (18 June) share price of 520p, this gives an attractive forward (2027) price-to-earnings ratio of 7.3.
Analysts are also predicting healthy dividends – 28.6p (2025), 32.2p (2026) and 35.7p (2027). If these forecasts prove to be correct, it means the stock’s yielding 5.5%-6.9%, depending how far ahead you look.
However, dividends are never guaranteed, especially from banks whose earnings can be volatile. And the 2008-09 financial crisis acts as a reminder that they’re a barometer for the health of the wider economy. In particular, NatWest’s heavily reliant on the UK. Any further sign of domestic weakness could stunt the bank’s growth and would increase the risk of bad loans.
But the bank comfortably beat earnings forecasts for Q1 2025. And there are signs that the housing market’s starting to recover, which should feed through to higher demand for mortgages.
To be honest, I’m doubtful that NatWest shares will deliver a 292% return over the next five years but I think it’s in a good position to grow its revenue and earnings significantly. Therefore, I think it’s a stock that investors could consider as part of a well-diversified portfolio.
