The NatWest (LSE:NWG) share price has been one of the FTSE 100’s standout success stories over the past year, surging 62% as solid earnings, a declining government stake, and a supportive banking environment have all fuelled investor optimism.
But with the shares now trading near multi-year highs, the key question is whether NatWest’s share price has peaked, or if there’s more to come?
Valuation’s key
Looking at forward valuation, NatWest remains attractively priced by historical and sector standards. The bank trades on a forward price-to-earnings (P/E) ratio of about 7.5 times for 2025, falling to 6.6 times in 2026 and 6.3 times in 2027.
These multiples are well below the long-term average for UK banks and suggest that, despite the recent rally, the market may still be underestimating NatWest’s underlying earnings power. Still, these shares were even cheaper last year.
The price-to-book ratio’s projected at 1.12 times in 2025, moderating to 0.97 by 2027. This is broadly in line with peers. We can also see that return on tangible equity (RoTE) is expected to remain above 15% through 2027. This is a sign of strong profitability and capital discipline.
The dividend yield forecast’s also attractive. NatWest’s dividend yield targets 5.7% for 2025, rising to 6.3% in 2026 and 7% in 2027. What’s more, dividend cover ratios consistently sit above 1.9 times during the period, indicating that payouts are well-supported by earnings.
This combination of high yield and robust coverage isn’t rare among major UK banks. However, I’m sure it’ll continue to attract income-focused investors as long as the payout policy remains intact.
Broader considerations
The broader economic backdrop’s another important consideration. UK economic growth’s been modest but steady, and banks like NatWest typically mirror the health of the domestic economy.
The outlook for interest rates is important and nuanced. Higher rates have boosted net interest margins in recent quarters and any sharp cuts could pressure earnings. However, hedging strategies should be pushing the positive impact of higher rates well into the future as banks replace lower-yielding debt with higher yields.
Despite these positives, risks remain. The recent share price rally has left NatWest more exposed to any disappointment in earnings or a deterioration in the UK economic outlook. Credit quality’s another area to watch, especially if consumer or business defaults rise. This could be worth watching closely if President Trump’s trade policies cause a pullback in global economic growth.
The bottom line
In short, NatWest’s shares are no longer the bargain they were a year ago. However, the forward valuation remains undemanding, especially when set against strong dividend prospects and resilient earnings forecasts.
The risk is that much of the good news is now priced in, but with P/E ratios still below the sector average and yields approaching 7% by 2027, it’s hard to argue the shares have definitively peaked.
Personally, I’m not buying NatWest shares because I’m already heavily exposed to the sector. But I appreciate its worth considering the mix of value and income.
