NatWest (LSE: NWG) shares have had a stellar run over the past year, rewarding shareholders with a 58% gain since August 2024. A combination of profit growth, privatisation, capital returns and structural change has helped drive that performance.
And it’s not just the capital gains that have made shareholders smile. The bank also pays a healthy dividend, averaging around 4.5% over the past year, making it a lucrative addition to many an income portfolio.
So what would an investment of £5,000 in August last year look like today? Accounting for both capital gains and dividends, a £5,000 investment would now be worth roughly £8,300. That’s a profit of £3,300 in just 12 months, equivalent to around £275 a month.
Annoyingly, I sold my shares last August. Ouch! But the real issue now is whether it’s too late to buy back in.
Impressive momentum
NatWest’s recent half-year results suggest the momentum may not be slowing. Attributable profit hit £2.5bn, with earnings per share up 28% year on year. Return on tangible equity (RoTE) reached 18.1%, significantly ahead of prior guidance. Efficiency also improved, with the cost-to-income ratio falling from 55.5% to 48.8%.
Shareholders were rewarded handsomely. The interim dividend rose from 6p to 9.5p per share, while management unveiled a £750m share buyback programme. That’s on top of the existing yield, already a draw for income-focused investors.
Fully private and forging ahead
One of the big milestones in 2025 was the bank’s return to full private ownership. In May, the government sold its final stake, ending nearly 17 years of state involvement following the financial crisis bailout.
This has lifted a lingering overhang on the shares. With the state out of the way, investor confidence has returned strongly — and that’s been a big driver of the recent rally.
Beyond privatisation, NatWest has been busy reshaping its future. The acquisition of Sainsbury’s Bank has boosted customer numbers and deposits. Meanwhile, it’s investing heavily in digital transformation and even partnering with artificial intelligence players to modernise its services.
Another plus is its UK focus. By concentrating on retail and service-sector borrowers, it’s less exposed to global trade tensions and tariff disputes that trouble more internationally oriented banks.
Worth considering… with caution
Investors are rallying behind NatWest because it’s delivering strong profits, efficiency improvements, compelling shareholder returns and a clean reset post-privatisation.
Even with the recent growth, its valuation still looks undemanding, trading on a price-to-earnings (P/E) ratio of around 10. Analysts expect earnings to continue growing at roughly 10% a year, as they’ve done since 2021, and the average 12-month price target sits 6% higher than today’s share price.
That said, the UK focus also carries risk. With most of its revenues tied to domestic lending, a slowdown in the UK economy, rising unemployment, or a housing market dip could quickly feed through into higher defaults and lower earnings.
Like all banks, NatWest’s also vulnerable to regulatory changes, particularly in areas such as consumer credit or high-cost lending. But overall, I think the bank’s well-executed turnaround, combined with a strong dividend policy, makes it worth considering as part of a diversified income portfolio.
I just wish I hadn’t sold my shares last August.
