If success breeds success, then watch out for NatWest (LSE: NWG) shares in 2026. They completely smashed it last year, soaring 67% over 12 months. This isn’t a one-off. They’re up a blockbuster 260% over five years.
All the FTSE 100 banks have been doing well, with Barclays and Lloyds Banking Group delivering similarly eye-popping returns. And remember, dividends are on top of these figures. Investors who reinvested every shareholder payout will have turbo-charged their overall return.
So much for past performance. The big question today is can they maintain this epic charge in 2026 and beyond?
A brilliant FTSE 100 sector
Higher inflation and interest rates have been tough on consumers and many businesses, but there’s been a huge spin-off benefit for the banks. It’s allowed them to widen their net interest margins, the difference between what they pay savers and charge borrowers. It’s a key profitability metric, and money has poured into their coffers as a result.
In full-year 2024, NatWest made an attributable profit of £4.5bn as earnings per share jumped 12% to 53.5p. Its return on tangible equity (RoTE), another key metric, climbed 17.5%.
And it wasn’t slow to reward investors, hiking the full-year total dividend by 26% to 21.5p per share. In total, it distributed £4bn to shareholders, including buybacks.
Thanks to the surging share price, NatWest’s trailing dividend yield has slipped to 3.35%, only marginally above the FTSE 100 average of 2.9%. Boardroom generosity will quickly put that right, as it intends to increase the bank’s ordinary dividend payout ratio from around 40% to 50%. The forward yield across full-year 2025 is now 4.98%, rising to 5.4% in 2026.
I could run through the numbers for Barclays and Lloyds too, but they tell a similar story. The key difference is that Barclays plans to reward investors primarily through buybacks rather than dividends. I prefer the latter, but that’s a personal thing.
High shareholder returns
As if with every stock, there are risks. If the Bank of England keeps cutting interest rates, that will squeeze margins. The UK economy’s struggling, which could increase impairment charges and knock profits.
Every bank is at the mercy of shocks such as regulatory breaches, IT system failures or cybersecurity attacks. The only way investors can allow for these is to buy shares with a long-term view, and hold on for the recovery. It has the added benefit of giving those reinvested dividends time to compound and grow.
Despite its stellar run, NatWest shares still look decent value with a price-to-earnings ratio of exactly 10. That’s what happens when earnings climb rapidly, as they have. The price-to-book ratio is now 1.2 though. While hardly excessive, a year or two back it was around 0.6. Again, the numbers at Barclays and Lloyds are pretty similar.
Success may breed success, but no stock rises in a straight line forever. There will be bumps, and if we get a stock market crash at some point, it could be a big bump. But with a long-term view, I think NatWest, Barclays and Lloyds are all worth considering today. Investors can take their pick.
